At the hub of the capital, Addis Ababa, emerges what is dubbed as a financial center with high rising and state-of-the-art buildings built by different companies including the state-owned Commercial Bank of Ethiopia. This is a sign to the expansion of banking and insurance companies’ services.
While the number of private banks and their branches is growing at rapid pace, the contribution of the financial sector to the overall economic growth proves a different kittle of fish. 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.
Experts argue as the sector’s contribution is not yet satisfactory in Ethiopia. The sector also falls short of mobilizing resources, domestic savings and channeling them into high- return investments. Still, significant portion of rural communities do not have access to banking and other financial services.
Poor infrastructural facilities, unhealthy regulations are major hurdles affecting the sector. But again the sectors’ actual performance depends on the policy of the state and the incentive attached to the sector. At a time where the country is doing its best to adjust the economy, economists pin hope on introducing reform in the financial sector especially in easing restriction and replacing poor regulation system with modern and efficient one, according to experts.
Getachew Asfaw, an Economist, says 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.
Interms 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, Mushe Semu, also an Economist, is satisfied with the financial sector’s contribution.
He argues 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 some highlight the dangers of rapid financial liberalization when regulatory frameworks are still underdeveloped, some others on the other hand propose opening up to stimulate competitiveness and expedite modernization. Eyesuswork Zafu is a development Economist. He has long been critic of the policy arguing its negative impact on the sector by reducing competition.
For him, the financial sector must go through paradigm shift to bring an improvement in the broader economic front. “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,” he adds. The country maintains closeddoor policy when it comes to financial sector. This, despite some protection to local investments, prevents the sector’s modernization and improvement. The sector is steered by strong government intervention which favors some groups and discriminate others.
The country need to gradually move to market-economy from the development state paradigm that allows stringent regulation by the government, as to Zafu Eyesuswork. Avoiding excess regulation, allowing increased private sector participation and ensuring better incentives are the prerequisites to improve the sector.
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.
Herald February 8/2019
BY DESTA GEBREHIWOT
