Bank of Ethiopia lifts restrictions for foreign banks

Ethiopia's parliament has made a historic move by passing a groundbreaking proclamation that allows foreign banks to enter the Ethiopian market, aimed at boosting investments in the banking sector. This development comes as the central bank expands its mandate beyond regulating monetary policy and ensuring price stability. The CEO of Pragma Investment Advisory, Mered Fikireyohannes, joined CNBC Africa to discuss the main objectives of the new proclamation and its impact on Ethiopia's banking landscape. The proclamation aims to create a strong and modern banking sector to support the country's growing economy. It paves the way for Ethiopia to welcome new foreign banks after a 50-year hiatus of the banking sector being closed to foreign entities. The proclamation outlines four modalities through which foreign banks can enter the market, including setting up subsidiaries, branches, joint ventures with local banks, or representative offices. This move is set to modernize Ethiopia's banking sector and align it with global standards, fostering integration with African and global economies. The anticipated timeline for foreign banks to commence operations involves regulatory procedures and changes to investment regulations, expected to be completed by 2025. The entry of foreign banks will lead to local mergers and acquisitions, regulatory adjustments, and technological advancements in the banking sector. These reforms are in line with Ethiopia's broader economic liberalization and modernization agenda, as part of the homegrown economic reform plan initiated by the government six years ago. The government aims to shift towards a private sector-led economy and attract foreign investment to support local entrepreneurs and stimulate economic growth. The opening up of the banking sector signals a new era for Ethiopia's economy, aligning it with global trends and increasing access to capital and technology for consumers and businesses. With a population of 120 million and a growing economy, a competitive banking system is essential to meet the country's credit needs and sustain economic development in the years to come.