ADDIS ABABA – Apart from promoting the role of the domestic banking ecosystem, the entry of foreign banks in Ethiopia would usher the country’s integration into the emerging global investment portfolio, figure economist said. Approached by The Ethiopian Herald, Senior Policy Adviser Costantinos Berhutesfa (PhD) said that Ethiopia’s increasing financial reforms and privatization coupled with the development of the stock market and well-functioning banking system help participate in the growing allocation of global investment to emerging markets.
Liberalization creates not only for the private sphere but also brings fresh market opportunities for state-owned enterprises, Costantinos (PhD) said, adding that it improves microeconomic efficiency, the role of the private sector in the economy and state financial vigor.
“Well-streaming risk-sharing and liquidity provision mechanisms should also be facilitated for the well-functioning capital market and investor-friendly environment in the economy.”
According to him, domestic banks have limited resources both in local and foreign currency as they are mainly insisting on small-scale financing for urban buildings and small-scale industries. They are not able to finance major infrastructure and industrial development commensurate with the country’s plan to be a middle-income country by 2030.
Furthermore, foreign banks are firmly believed to infuse huge capital for national development and promote FDI since it depends on the ability of banks to provide investors with convertible capital for agricultural, industrial and mining development.
In the same vein, foreign banks will be delivering significant experience in financial management, prudential administration of credit resources, and global capability in risk management that benefit consolidated local banks.
“Financial liberalization accelerates the integration of a developing country economy into the global market economy and reversal of capital flight,” The Ethiopian Herald has learned.
On the contrary, Costantinos said: “If the financial liberalization is not handled through well-endowed regulatory functions, it will cause uncontrolled financial instability and regulatory complexities, potential destabilization of the local banking sector, and the risk of financial contagion.”
“Financial liberalization improves the country’s financial vigor, free resources for social policy, public sector finance and potential reallocation of outflows to human development. They also bring advanced technologies, innovative financial products, and efficient banking practices that can lead to a more competitive and dynamic banking environment,” the expert underscored.
It is to be recalled that the Council of Ministers has recently endorsed the draft banking business law that allows granting foreign banks with licenses to operate in Ethiopia.
BY ASHENAFI ANIMUT
The Ethiopian Herald June 30/2024
