Provision of infrastructure service like roads and electrification to the public is widely carried out by private sector in developed countries. But in developing countries like Ethiopia, it is common to make accessible these services with government’s effort. The other option which is underway in some countries is the way government and the private sectors partake cooperatively.
Finance is the main engine for the realization of any infrastructure or mega projects. According to Dr. Demelash Habtie, assistant professor in economics at Unity University, 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. He said this when approached by Ethiopian Press Agency while explaining about economic impact of Ethiopian origin foreigners’ participation in the country’s financial sector.
The issue that needed explanation was 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.
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’s 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, he noted.
The time seems at hand that the comments of these experts are considered by the side of Ethiopian government. The indicator for this is the decision made by the Council of Ministers on 2 May 2019 on their 15th instant meeting.
Among the issues provided for discussion was improvement of draft proclamation of banking system. The main objective of the draft proclamation, as per the office of the prime minister, is participating Ethiopian origin foreigners in the banking system. Engaging these people in this financial sector enables them partake in the multidimensional transformation underway in the country.
As a result, banks collect finance from inland and foreign countries and play great role in the country’s economic development by providing for different development sectors.
Cognizant to the key role of banks in the country’s economy, payment and payment process, National Bank of Ethiopia presented the draft proclamation for the decision of the Council of Ministers. Conducting thorough discussion on the draft proclamation and adding improvements, the Council has decided to handover it to the House of People’s Representatives for endorsement.
Herald May 7/2019
BY BACHA ZEWDIE
