Foreseeing the country as the home of both rich and low-income community as well as Africa’s beacon of prosperity, the reform government of Ethiopia led by Prime Minister Abiy Ahmed (PhD) has been working admittedly to execute new programs such us; setting new economic reform agenda that would ensure a decent livelihood so far.
The government has recently announced that it is coming up with smart intervention to open up the market domain for foreign actors and set up a new legal framework that envisions augmenting competitiveness and stabilizing the market thereby arresting the soaring inflation.
Opening up the local market for the foreigners is amongst the decision made by the government after its major policy shift in 2018. Many of economists agree that this decision is significant to stabilize the national economy.
Finance State Minister, Eyob Tekalign (PhD) recently told the local media that capitalizing on the experience in the telecommunication industry, the government will allow foreign companies’ involvement in Ethiopia’s marketing system that is believed to enhance fair competition and stabilize the cost of living.
Though the government has been executing viable economic policies that have greatly boosted the economic progress, the society has been suffering immensely from an uncontrolled spike in the price of goods and services. Foreign firm entry to the domestic market will bring immense opportunity to the Ethiopian financial sector, and create strong competition challenge, he asserted.
Noting the rise in commodity prices in the global market is the main cause of inflation in Ethiopia, the State Minister highlighted that the price of metals, oil and wheat, for instance, have increased at a double-digit rate for the past years. This double-digit price increment of commodities in the international market will undoubtedly lead to unparalleled levels of inflation in Ethiopia. Also, internal factors including the war broke out in the northern part of the country and conflicts happened here and there along with market monopolization by few traders has been input for the inflation and market destabilization.
“The northern conflict has an adverse impact in hindering the flow of goods and services from place to place thereby exacerbating the situation,” he remarked.
“The monopolization of Ethiopia’s market by few domestic firms is also significantly contributing to the alarming rate of inflation in Ethiopia,” Eyob claimed, adding that those business entities that have been operating without competition have been selling products at hefty profits. “Accordingly, the government is working to change the monopoly of the market through nurturing competition and attracting global companies with the desired capital expertise,” he noted.
About the Gross Domestic Product of the country (GDP), he indicated some progress, though it is not significant, has been witnessed in the performance.
In their short stay with The Ethiopian Herald, experts of the field highlighted that Government’s plan to open-up Ethiopia’s local market for foreign actors is instrumental to support innovation, job creation and investment in the sector and greatly contribute to the growth of the national economy, calling for a viable legal framework.
An economist Hailemeskel Gezu noted that the involvement of multinational firms in Ethiopia’s market would play a significant role in stabilizing the soaring inflation which is exacerbated by the COVID-19 pandemic, the northern conflict, drought and locust invasion. The Prime Minister Abiy Ahmed’s (PhD) Administration has made commendable jobs in executing viable macroeconomic reforms that keeps the growth of the economy amidst the aforementioned economic challenges over the country.
Noting that opening all business sectors for foreign investors except those reserved for domestic investors exclusively is paramount importance for the economic growth of the country, he underscored that Jointly or alone, a foreign investor can do investment business in Ethiopia in multitude of business sectors.
As different documents revealed that Ethiopia is still suitable destination of investment for foreigners and investors are still interested in Ethiopia, the government would not be deterred for its decision to open up its market, he recommended.
“However, the government should prepare or amend strong policies and frame works in or to balance and control the activities of the foreign markets as it is responsible for stabilizing the national economy. But it does not mean that the government shall restrict every of their activity,” he accentuated.
Expressing conviction for what was said by Hailemeskel, another economist Wassihun Belay for his part indicated that permitting foreign banks to engage in the local market would bring modern technologies, skills and experiences to Ethiopia. The foreign actors, in the banking sector for instance may support the national economy in providing effective saving and credit services for private and public enterprises, he mentioned.
Wassihun further highlighted that the permit would bring sufficient financial resources to the agricultural sector and supplement its transformation to agro-industry thereby enhancing structural transformation and import substitution capacity. As to him, most of the local firms and investors channel the profit they gain from one sector to the other. Meanwhile, foreign companies usually tend to take the net profits out of the country.
However, the expert stressed that the involvement of foreign banks into the financial sector would challenge Ethiopia’s economic security and advised the government to formulate a viable legal framework that would enable it to effectively regulate and monitor the conduct of multinational firms.
When Ethiopia awarded its first private telecom license for Safaricom, Prime Minister Abiy Ahmed hailed it as the crowning achievement of his plan to open up Ethiopia’s tightly controlled economy of over 109 million people.
Acknowledging the reformist government which is led by Prime Minister Abiy Ahmed (PhD) for its decision to liberalize state-run economy for foreign companies, Mekonen Abera, an Economist explained the local markets that exist across the nation should modernize and exploit their potential in order to compete with the foreign firms.
“Despite the ongoing pandemic, locust invasion and other challenges, the government is pushing through the home-grown economic reforms. A brutal act by the terrorists TPLF group against the Amhara and Afar regions and the Shene group at some parts of Oromia region have shuttered many firms operating there. Therefore the government’s decision is timely to revamp the national economy,” Mekonen said.
According to him, permitting foreign firms’ participation would fill the gap in the scarcity of capital in Ethiopia. The participation of foreign firms into the local financial institutions will help to reduce financial problems in some way, but policy towards it would be implemented carefully according to the economic interest of the country.
Foreign firms would pull out in times of trouble and this would endanger the national economy. However, inter-connecting international financial institutions with local counterparts to enter into the market would bring competitive pressure among the former. This will consolidate and reach a scale at which they can effectively perform and compete, he remarked.
On the whole, many scholars of the field agreed that it is good news for the national economic growth as new foreign firms entry to the Ethiopian market will further fuel competition. And this competition will force domestic markets to innovate to survive and thrive. Subsequently, Ethiopian domestic financial institutions should get prepared to design a strategy to enable them competes with the inevitable arrival of foreign firms to the Ethiopian market, the economists recommended.
BY HIZKEL HAILU
THE ETHIOPIAN HERALD TUESDAY 15 MARCH 2022
