At the hub of the capital, Addis Ababa, emerges what is dubbed as a financial center with high rising and the state-of-the-art buildings being built by different banks, however experts cast doubt on whether the financial sector is contributing its fair share to the economy citing strong regulation and restriction.
Despite the leapfrog growth in the number of banks and their branches, the finance sector experts argue lag behind competitiveness and modernization which require economic opening up and reform to reverse the trend. Allowing foreign investments, giving equal opportunities for the private sector should receive emphasis in any economic reforms of the government to increase the contribution of the financial sector to the GDP, according to experts The Ethiopian Herald approached for comment.
“We can argue that the financial sector is lagging behind especially, the insurance sector is way behind mainly due to lack of professionals.” In general, the financial sector is very weak and cannot be competitive enough at the international level,” says Eyesuswork Zafu, a development Economist. The country maintains close door policy when it comes to financial sector, despite this, some protection to local investments prevents the sector to modernize and improve.
The sector is steered by strong government intervention which favors some groups discriminating others. The country needs to gradually move to market-economy from the development state paradigm that allows stringent regulation by the government, as to Eyesuswirk. Easing government restrictions to favor state owned bank is inevitably important for financial institutions to be capable of mobilizing resources, particularly domestic savings, and channeling them into high return investments.
“In fact some highlight the dangers of rapid financial liberalization when regulatory frameworks are still underdeveloped but easing restriction should not be ruled out.” Avoiding excess regulation, allowing increased private sector participation and ensuring better incentives are the prerequisites to improve the sector. The first step should be taken by the government if any reform is to be carried out in relation to the sector. There must be a paradigm shift to bring the financial sector into new height.
The thing is 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 financial sector must be led by professionals and good leaders who can make a big difference in the sector, as to the Economist. The fact that the rise in the number of Banks and their branches does not necessarily implies the growth of the sector.
The sector is under developed in terms of its contribution to the economy in fact it is not well poisoned to make great impact in the economy, Getachew Asfaw Economist “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.
In terms of profit and asset ownership, banks are expanding but their share in the GDP is negligible.” Still significant portion of rural communities do not have access to banking and other financial services. Poor infrastructural facilities, strong regulations are major hurdles affecting the sector.
The government must strike a balance between regulation and economic freedom. There is growing number of bankable population in the country while the profit and branches of banks growing rapidly. The sector is also employing significant numbers of workers. In this regard, the finance sector is contributing its share to the overall economic growth, states Mushe Semu , an Economist.
The sector has indispensible role to play in changing the livelihood of the people through channeling investment but its actual performance depends on the policy of the state and how much it incentivizes the sector, Mushe adds.
The total amount of resources mobilized by the banking sector through deposit, loan collection and borrowing is increasing, but expanding access to the rural community requires tough job ahead.
The Ethiopian Herald, January 25/2019
BY DESTA GEBREHIWOT
