Ethiopia embarks on financial sector reforms to attract foreign investment

Ethiopia is setting its sights on economic transformation by implementing widespread reforms in its financial sector. The government's initiatives are directed towards liberalizing the sector, attracting foreign currency into the country, promoting savings and investments, bolstering foreign exchange reserves, and addressing balance of payment challenges. Zemedeneh Negatu, Global Chairman at Fairfax Africa Fund, shed light on the recent developments in an interview with CNBC Africa. One key area of focus is the privatization of state-owned enterprises, with the telecom sector taking the lead. The issuance of tenders for two new telecom licenses has garnered significant interest from potential bidders, signaling a strong market appeal for Ethiopia's vast consumer base and untapped potential. The government has also put plans in motion to privatize sugar mills, aligning with its broader agenda of economic liberalization and privatization. Beyond privatization, the financial sector has witnessed a series of reforms aimed at attracting foreign capital and promoting financial inclusion. Ethiopians and residents are now permitted to open hard currency accounts, offering an attractive interest rate to incentivize domestic deposits. Local banks can now borrow foreign currency to support lending to companies, particularly exporters, fostering economic growth and trade. Exporters are allowed to retain a larger share of hard currency earnings, providing them with greater flexibility and resources for business expansion. In a strategic move, the central bank aims to transition to a market-determined exchange rate in the coming years, enhancing the country's economic resilience and adaptability to global market trends. Looking ahead, Ethiopia is set to establish a stock market in 2021, paving the way for capital market development and investment opportunities. Additionally, the introduction of a secondary market for treasury bills underscores the country's commitment to enhancing financial infrastructure and market efficiency. A notable reform includes the permission for Ethiopians and individuals with dual citizenship to own shares in local banks, opening up new avenues for investment and participation in the financial sector. While the immediate impact of these reforms is already being felt, the long-term implications are expected to drive sustainable economic growth and prosperity. As Ethiopia embarks on a journey of financial sector transformation, stakeholders anticipate a positive trajectory in the economy over the next few years, catalyzed by the progressive reforms and policy measures in place.