Ethiopia’s Parliament has approved a new banking proclamation that paves the way for foreign banks to enter the country’s financial sector. The legislation permits foreign banks to purchase shares in local banks and, with case-by-case approval from the National Bank of Ethiopia, fully acquire them. This marks a major step in opening up Ethiopia’s banking industry to international investment.
Ethiopia has recently implemented significant reforms to attract foreign direct investment, including opening its financial sector to foreign entities. Previously, this sector was restricted to domestic investors. The changes are part of Ethiopia’s Second Home Grown Economic Reform (HGER 2.0), aiming to liberalize the economy and enhance foreign investment opportunities.
The financial sector’s opening represents a significant change from past policies. Historically, Ethiopia’s banking sector was closed to foreign banks, with nationalization occurring in 1975. Despite policy shifts in the 1990s, the sector remained off-limits to foreign investment until now.
This new legislation allows foreign banks to enter the Ethiopian market through various modalities: establishing subsidiaries, opening branches, setting up representative offices, or acquiring shares in existing domestic banks. Foreign nationals can also invest in Ethiopian banks, with specific shareholding limits set to ensure balanced participation.
A foreign bank or strategic investor can acquire up to 40% of shares in a domestic bank, while foreign individuals can hold up to 7%, and entities can hold up to 10%. The total foreign investment is capped at 49%.
Branches of foreign banks can either take deposits wholesale or operate as non-deposit-taking entities, but they cannot do both. Investments must be made as foreign direct investment (FDI) in foreign currency. Dividends and salaries earned by foreign nationals can be repatriated under the new regulations.
Ethiopia’s rapidly growing population and expanding middle class make it an attractive destination for foreign bank investment. Despite being one of Africa’s largest economies, its banking sector remains underdeveloped, presenting significant growth opportunities for foreign investors.
The entry of foreign banks is expected to bring new capital, advanced technology, and innovative products to Ethiopia’s financial sector, benefiting both investors and the country. As Ethiopia continues to integrate into the global economy, these reforms signal a promising future for international financial collaboration.
For more information about these regulatory changes and how they might impact your business, please contact our law firm. We specialize in navigating the complexities of international investment and can provide expert guidance on entering Ethiopia’s newly opened financial sector.
--
Read the original publication at Dablo Law Firm
