Ethiopia welcomes foreign banks after decades of isolation
After more than fifty years of restricting foreign banks, Ethiopia is finally moving to open its financial sector — a significant change from decades of strict protection laws founded on economic nationalism and the necessity for state oversight.The country initially closed its financial borders following the 1974 nationalization of banks during the Derg military regime. Even after the fall of the regime, Ethiopia continued its policy of isolation, cautious of foreign influence in a sector historically perceived as vital to its political and economic independence.
Now, in a dramatic departure from past practices, the government is welcoming foreign banks and investors. This decision comes in response to worsening economic conditions. Since 2018, foreign direct investment has dramatically declined, adversely affected by internal conflicts — notably the civil war in Tigray — and poor economic management.
In July 2024, Ethiopia adjusted its currency valuation as part of a new structural adjustment program endorsed by the International Monetary Fund.
The birr's value fell by 30% against the US dollar, exacerbating poverty levels and increasing pressure on the government. Along with ongoing discussions to restructure \$8.4 billion in external debt, the need for these reforms is apparent.
Interest in Ethiopia's banking industry has been strong for some time. Regional powerhouses such as Kenya’s KCB Group and South Africa’s Standard Bank have expressed interest in the market for years. However, access remains restricted — only five foreign bank licenses will be granted over the next five years, leading to fierce competition.
Although this initiative is presented as part of a wider reform agenda, many analysts perceive it as a measure of desperation rather than a sign of confidence. The future of Ethiopia’s banking system is uncertain. One thing is evident: the dynamics are shifting in a country that once regarded foreign banking as a threat.
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