Ethiopian lawmakers have passed legislation permitting foreign banks to operate subsidiaries in the country, marking a significant shift in the nation’s financial landscape.
The new law, approved by a parliamentary majority, is part of Prime Minister Abiy Ahmed’s push to open Ethiopia’s historically state-controlled economy to foreign competition and investment. However, progress on these reforms has been hindered by internal conflicts, including the Tigray civil war from 2020 to 2022, and international sanctions.
Under the law, foreign firms can own up to 49% of shares in Ethiopian banking entities, according to the Addis Standard. Analysts see this move as a crucial step to attracting broader foreign investment and boosting Ethiopia’s economy.
The banking reform aligns with other economic changes, including the liberalization of Ethiopia’s currency, the birr, which began floating freely against the dollar in July. Although the decision led to a sharp decline in the birr’s value, abandoning the dollar peg was necessary as foreign currency reserves had dwindled.
These reforms also paved the way for international financial support, including a $3.4 billion IMF aid program and $1.5 billion from the World Bank, which had been stalled pending currency liberalization.
Once one of Africa’s fastest-growing economies, Ethiopia experienced annual growth rates exceeding 10% between 2004 and 2019. However, the combined effects of internal conflict, the Covid-19 pandemic, and the Ukraine war have slowed growth to an average of 5.9% between 2020 and 2023, while inflation surged from 20.4% to 30.2%, according to the World Bank.
The new banking legislation is seen as a milestone in Ethiopia’s efforts to rebuild its economy and signal its readiness for global business partnerships.