Relatively speaking, Ethiopia’s financial sector has been growing with number local private institutions taking a leap from time to time. The young but also key sector has seen rise in terms of number and asset ownership, however, it also lags behind in terms of accessibility and service diversification.
Still, significant number of bankable rural population remains without with access to modern financial services which is taking a toll on national saving and investment.
Finance as many prefer to label it as the blood vessel of economy is the first rung towards propelling the economy through catalyzing investments and transactions Paradoxically, the sector’s contri -bution to national GDP is also very minimal.
As some argue the fact that the industry has long been closed for foreign investments has affected competitiveness and progress. Moreover, lack of innovated products and heterogynous services has also been the major challenges facing the sector. Poor infrastructural facilities, unhealthy regulations are major hurdles affecting the sector.
Since coming to power, the new leadership has been focusing on improving the sector, and talks have been underway with regulation body to overcome policy related challenges. Consequently, a revised banking proclamation has been ratified which would allow Ethiopian diasporas to take part in the investment.
The new legislation is expected to open up the sector and entice more investment. The demand for additional banking is increasing with the Amhara and Hijra and Zem Zem banks and other are already under establishments. This is a promising move to further stimulate the industry that falls short of mobilizing resources, domestic savings and channeling them into high- return investments.
Getachew Asfaw is an Economist. He previously told The Ethiopia Herald said that the rise in the number of Banks and their branches does not necessary imply the growth of the sector. The sector is underdeveloped in terms of its contribution to the economy. In fact, it is not well positioned to make great impact in the economy. “It is hard to weigh in terms of its impact in the overall economy, when the sector is highly regulated not properly managed by state, the result becomes discouraging.
In terms of profit and asset owner of ship, banks are expanding but their share in the GDP is negligible.” However, as the economist goes deeper into the matter, they found policy related problems to be major hurdles awaiting reforms. On the flip side, said, Mushe Semu, also an Economist, is satisfied with the financial sector’s contribution.
He argued that there is growing number of bankable population in the country, so do the profit and branches of banks. The sector is also employing significant number of workers but in terms of contribution to the economy and modernization as well as competitiveness, he admitted that the financial sector remains at nascent stage. For long, the country has been adopting on very strict policy, not opening the sector for foreign investment, a policy that has also been met by both supports and critics.
While debates are ongoing, experts urge the government must strike a balance between regulation and economic opening up. To sum up, compared to its age, the financial sector is doing well but more needs to be done to place the sector in the way that can bring economic dividend to the country. The need for financial sector to be led by professionals and good leaders is the shortest possible way for other problems to be redressed.
With some investments affected by the political crisis the country had gone through over the last few years, the quest for investment insurance is now on the rise, insurers’ ability proves to be questionable though. Now that the country has enjoyed relative peace and stability, the need for expanding investment insurance make it mandatory for the country to pull more investments and increase investor’s confidence.
Companies must be innovative. There is a contradiction between the need for adequate protection and companies’ ability to provide efficient insurance products, he indicated.
Healthy economic growth is achieved by the private sector. The government long exercised more intervention. However, the rising demand for more growth and investment make economic liberalization is an inevitable and behooves the more engagement of investors.
The Ethiopian Herald September 13, 2019
BY DESTA GEBREHIWOT
