Lauding the government’s decision to allow foreigners of Ethiopian origin to invest in the financial sector in addressing the pressing capital, technological and modernization challenges as well as forex crunch, economic experts are calling for vibrant liberalization in the financial industry. Recently, the Council of Ministers approved a draft law that allows foreign nationals of Ethiopian origin to buy shares in commercial banks and insurance companies as well to create a Diaspora Bank in a view to creating fertile ground for Ethiopian Diaspora to take advantage of the economic reforms underway in their country of origin.
Speaking to The Ethiopian Herald, Accounting and Finance Assistant Professor at Wollega University, Desalegn Mosissa says that foreigners of Ethiopian origin was banned from investing in the financial sector to protect the infant sector from monopolized by few groups and foster fair competition among local banks and insurance companies. The uneven distribution of financial institutions in rural areas and Ethiopia’s cashdependent paying system were also factors for the restriction.
Desalegn states that the permit is part of the current macroeconomic reforms and aims to bring in the rich knowledge and experience as well as advanced banking technology and innovation the Diaspora community learn in the Developed World to Ethiopia’s financial system. According to him, the Diaspora’s participation in the financial sector would also supplement Ethiopia’s forex reserves and plays an important role in easing the existing chronic forex crunch; the establishment of Diaspora Banks in the other hand, has a role to provide significant number of jobs for the educated youth.
“As members of the Ethiopian Diaspora import more hard currencies, more financial packages are established, and this would enhance productivity and export performance thereby narrowing down the gap in balance of payments.” The expert indicates that lifting the restriction of the involvement of Ethiopian Diaspora in the financial industry is also pivotal in ensuring the private firms access to loan and foreign currency and boosting their institutional capacity and helping them to become the engine of economic growth.
“The decision is also vital to shorten Ethiopia’s long-awaited accession to the World Trade Organization (WTO),” Desalegn says, adding that the substantial foreign currency the Diasporas inject in Ethiopia’s market to the purchase of bank and insurance shares would also curtail the growing parallel market. Sharing the above, another economist with the experience in banking industry, Mushe Semu says that the Diaspora’s rich knowledge and experience is significant to ensure technological transfer and ease of doing business whilst the financial sector could benefit from their management skills.
Mushe notes that the Diaspora’s participation would help the transformation of Ethiopia’s traditional banking service to a world-class level and create a stiff competition among the state- owned Commercial Bank of Ethiopia (CBE)and private banks for better market shares thereby ensuring quality banking service. He states that the Diasporas capital investment would have a trickledown effect for national economy and enhance the financial sector’s contribution for economic growth as well as the boost in Ethiopia’s Gross Domestic Product.
Diaspora’s investment in the financial sector is also one of the instruments to boost the forex reserves which is depleted by inconsistent export performance and huge public expenditure as well as a growing demand for capital and consumer imports. “Bringing profound banking experience and good-sized capital, the Diasporas contribute share in addressing the challenges Ethiopia’s banking industry has been encountering,” the expert notes, adding that their involvement could also help the service become more efficient and accessible towards the principal portion of the society.
Expressing conviction that permitting the Diaspora community’s participation and other administrative measures would bring short-term solutions to Ethiopia’s financial industry setbacks, the experts stress that the sector is in need of greater degree of liberalization and less government control. Mushe says that the difficulty the private firms has been facing to access loan and foreign exchange from CBE and Development Bank of Ethiopia (DBE) is one of the impediments of Ethiopia’s economic growth and the limited allocation of resources could trigger corruption and rent-seeking tendencies.
Private business and investment projects unsatisfactory beneficiary from State banks’ huge loan disbursing capacity is something worth major reform. According to him, the government should restructure both CBE and DBE in the view to exploit their enormous resource for the consolidation of the country’s banking industry and facilitate the banks gradual transformation to private sector’s ownership through selling minority shares.
“The State could establish a new policy bank to finance expenditures for the execution of mega projects and national infrastructural development.” By the same token, Desalegn says that the National Bank of Ethiopia should enhance its institutional capability and independence to better regulatory activities, and it is expected to issue and execute longlasting laws and policies that would ensure the economic benefits of both the state-owned and private financial institutions.
The experts highlight that the government needs to formulate a system that regulates the banks’ better market share is only determined by accessibility and price as well as convenient service, new products and technological innovation they offer to the public rather than of state’s control and intervention. Limiting the existing huge government’s control and regulation in the financial sector and allowing the systematic opening of the area for foreign investment as well as easing financial transaction and system would create an effective liberalization of the financial industry, they remark.
The Ethiopian Herald May 14/2019
BY BILAL DERSO
