“Great amount or over 60% of capital invested on our country’s development is drawn from income tax. The rest is from loan, by privatizing governmental organizations, foreign direct investment, from remittance, aid and portfolio investment,” explained Dr. Demelash Habtie, assistant professor in economics at Unity University while explaining about economic impact of Ethiopian origin foreigners’ participation in the country’s financial sector.
He said this when approached by Ethiopian Press Agency following the communiqué of National Bank of Ethiopia regarding the studies conducted on involvement of Ethiopian origin foreigners in the finance sector. The document will be in use after discussions are carried out by concerned bodies and endorsement as to the bank’s official announcement.
The motive that initiated the studies is the ban that National Bank of Ethiopia imposed on the movement of the shares of Ethiopian origin foreigners and sales of profit gained from the shares quoting the proclamation that restricts ownership of banks and insurances only for Ethiopian citizens. These people have purchased their shares while they had been Ethiopians and lately changed their citizenship. The engagement of these people in the finance sector, as to Dr. Demelash, is portfolio investment and it is a kind of investment in which they buy share from the previously established governmental or private sector as it is available for bid and become semi owner.
No need of counteracting the Ethiopian origin foreigners while they are taking the risk of being winner or loser in the engagement of the financial sector. Its blockage after 20 years of operational by itself is erroneousness. It is a measure intentionally made to hold back the participation of the private sector. Instead, it is the time of working vigorously to match with the leading ones. Keeping up on his elaboration, Dr. Demelash said that when these people bring foreign exchange and purchase share in the already institutionalized enterprises and become owner aiming at gaining profit, the risk is their own and even a very good way for various reasons.
These are: it rescues the government from the burden of loan and debt as it fetches great amount of forex; when the enterprise become profitable it collects money; and as the enterprise is getting larger it hires additional human resource. This share and bond purchasing portfolio investment was seen very minimal in Africa in 2017/18. It was deducted in the very alarming rate as the causes are individuals and most of them do not want to take the responsibility.
They are not being hearten to work in non stabled political and social movements and twisted bureaucracy. Thus, government has to encourage the portfolio investment when need is at hand as it is one of the financial sources outlaid for development, he noted. The finance sector is not injecting for the economic growth of the nation toward its required amount as explained by Dr. Dmelash. Out of the 10.9% growth of Ethiopia’s economy registered in 2018, the share of financial sector is very recessive. The industrial sector contributed 4.4% though it is not the manufacturing industry rather the construction industry. The next is the service sector which comprises transport, trade and banking with 4%. The agricultural sector is at the third level with 2.5%. The intention to uplift the ban against the finance sector is one step ahead to draw close to the wide economic activity and the measure is justifiable. It fetches additional fund to be outlaid on the investment through advancing the poor saving potential of the country. No harm will happen because of the injection of this investment capital to the economy, he underscored. The harm will occur when the share provider fails to perform more efficiently using the fund. Governmental inspection is crucial in order to circumvent the threats of financial fraud and money laundering. Our country has to learn from the problem America encountered by making the financial sector out of sight. India and China have good experience in inspecting the sector. As a result, they didn’t entertain the economic crisis occurred globally, he further explained.
. Adding, he said that the credibility of the finance sector is not accountable for the growth Ethiopia is scoring since it is not thrived. That is the reason why we have to perk up the sector. Taking the profit to somewhere else and selling are individual rights related to property ownership. States should not violate this right rather they have to respect. Because investment always comes for profit not for righteousness, he stressed.
As our economic activity is getting escalated our hard currency deposit also increases and we will not be in danger to pay their profit in forex. We have to open our door wider and wider. Instead of making a big step at once we have to walk gradually to the global economy. As a result, the sector should be open not only for Ethiopian origins but for other foreigners too, he noted. Amin Abdela, economic policy researcher and head of Trade and Industry Department at the Institute of Ethiopian Economic Research, on his part said that the ban should not be applicable backward. Even, if it is supposed as a necessity, it should be expressed as to be applicable afterward.
He said, “Ethiopian origin means a foreigner. According to the law under operation a foreigner cannot establish bank in Ethiopia. However, institutionalizing a Bank and purchasing share are unlike.” Instead of total ban, as to the researcher, applying various restrictions is possible. For instance, when the Ethiopian origin wants to take the profit, fixing the hard currency percentage and allowing the exceeding amount in Birr is one way. The other proper way is restricting the share of Ethiopian origins to not exceeding 10% at every bank. This safeguards the banks from foreigners’ imposition.
The participation of Ethiopian origins in the finance sector, as to Amin, has not only advantage but also disadvantage. The country provided them citizenship can exert pressure on them. For instance, if that country and Ethiopia engaged in some kind of crisis, a problem will arise. The investors may ask their property in Dollar. There is a possibility to happen such kind of problem in other sectors too.
For example, a cement manufacturing industry can sell its gross products locally and ask the National Bank in Dollar or the owner sells the enterprise and ask the change in Dollar. In both cases National Bank is obliged to pay the change. As Ethiopia gains Dollar with labor pains, it will be a great crisis to its economy, he underscored. Therefore, careful measures should be taken aiming at mitigating the complexity. Opening the door in this sector should be carried out based on study and definite direction, he stressed.
Herald March 12/2019
BY BACHA ZEWDIE
