Liberalisation of financial markets in Ethiopia

Ethiopia is currently navigating through economic challenges, with talks ongoing with the IMF following a default on a Eurobond payment last year. The government has secured external funding from the World Bank and the EU but faces hurdles in concluding talks with the IMF due to political developments. Amidst the uncertainties, Ethiopia is on the brink of transforming its financial markets, heralding a new era in its economic landscape. CNBC Africa conducted an interview with Bernard Laurendeau, the CEO and Co-Founder at Arifpay, shedding light on the current economic trends in Ethiopia. Laurendeau emphasized Ethiopia's robust economic fundamentals, highlighting the country's ascent as the fifth largest GDP in Africa, standing at close to $200 billion. With a youthful population where 70% are under 30 years old, Ethiopia is poised to achieve lower middle-income status by 2025, echoing the government's long-standing objective. Despite these positive indicators, an exchange crisis looms large due to trade imbalances, driving uncertainty around exchange rates and devaluation. Laurendeau provided insights into Arifpay's pivotal role as a payment system operator, offering perspectives on monitoring financial flows amidst transaction volumes in the hundreds of millions daily. The surge in digital transactions, surpassing cash payments in Ethiopia, underscores the country's shift towards a cashless economy. The interview delved into Ethiopia's financial market liberalization, with Laurendeau advocating for cautious progress in opening up the sector. The incremental approach adopted by the government has demonstrated success, particularly in enabling non-bank financial institutions like Arifpay to thrive. However, concerns linger over potential risks associated with rapid liberalization, especially against the backdrop of looming devaluation and uncertainty in the market. Foreign entrants are treading cautiously amidst speculations, awaiting official announcements on potential deals with the IMF. The interview highlighted the pivotal role of banks as the backbone of the economy, with the National Bank closely monitoring the landscape to prevent foreign interests from destabilizing the sector. The regulatory requirement for banks to merge and meet specific thresholds adds another layer of complexity to Ethiopia's financial sector dynamics, necessitating strategic deliberations to ensure stability and growth. Addressing the IMF funding discussions, Laurendeau stressed the significance of resolving uncertainties surrounding the dialogue for both local operators and external investors. The need to streamline government spending and policies, reduce red tape, and enhance policy coherence emerged as critical steps in navigating Ethiopia's economic challenges. Democratizing payments and minimizing reliance on foreign currency are vital strategies to drive sustainability and efficiency in the financial ecosystem, paving the way for a more resilient and competitive market landscape. As Ethiopia embarks on its journey towards liberalizing financial markets, stakeholders must navigate carefully to harness opportunities for growth while mitigating risks to ensure a stable and prosperous economic future.