Ethiopia is embarking on a mission to join the middle income country group by 2025. Massive expansion of investment both from domestic and abroad is expected to achieve these targets. In recognition of this, Ethiopia is set to issue licenses to let foreign investment banks operate in the country, hence sputing FDI by 70%, a key step ahead of its planned launch later this year of a securities exchange announced by Prime Minister Abiy Ahmed as he highlights this is an effort put forth to boost private investment in the country.
Ethiopia is set to issue licenses to let foreign investment banks operate in the country, a key step ahead of its planned launch later this year of a securities exchange. The country’s economy is still heavily controlled by the state, a legacy of being a command economy for decades, but the shift by Abiy towards more private sector involvement was notable for being more ambitious than previous attempts at opening up.
The establishment of FDI is a strong testament that the government’s economic reform agenda for growth and resilience is well on track,This is Ethiopia’s attempt to find more sources of investment inflows via debt, which would support its investment-led growth model.
Brook Taye, CEO Ethiopian Capital Market Authority
According to local media reports, there are currently no investment banks in Ethiopia, and commercial banks are only able to offer limited funding to businesses due to prudential requirements. Demand for capital-raising services is huge because businesses are currently paying 25% interest on commercial bank funding and have to provide collateral worth 70% of the value of the loan, a bottleneck to the economy. A reason the government intends to open markets to foreign investors is to improve private markets by 70%.
The macro situation of our country is very clear because we went through a lot of challenges for the past 5 years. But we have to look at where the Ethiopian economy is now as compared to where it was. We have to invest largely in our capital and the most important focus now is experience and know-how.
Brook Taye, CEO Ethiopian Capital Market Authority
The government’s implementation of a series of economic reforms designed to liberalize the economy, attract strategic foreign investment, and promote private sector growth makes for a solid foundation for Ethiopia’s growth story. These reforms include the privatization of state-owned enterprises, the liberalization of key sectors such as telecommunications and aviation, and the simplification of the business registration process, reports economists.
