The president of the Commercial Bank of Ethiopia notes the risks of opening …

Abe Sano sees a risk in opening the door of the Ethiopian banking sector to foreign investors. He advises action restrictions as a remedy

Abe Sano, Chairman of Commercial Bank of Ethiopia (Photo: Public Domain)

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The Ethiopian government announced on Saturday that it was opening up the banking sector to foreign investors. It is a decision of the Council of Ministers under the leadership of Abiy Ahmed. The issue was not even debated in the Ethiopian Parliament.

The development drew reactions from Ethiopians on social media. There are those who tend to view, in fact passionately, the decision as something that would transform the industry in terms of service delivery and making more finance available to borrowers. Rather, the argument supports the logic put forward by the “Council of Ministers”.

The administration of Prime Minister Abiy Ahmed, who was beating the drums for inventing a “local economic model”, argued in favor of opening up the sector to foreigners. “Opening the sector to expatriate investors would help base services on knowledge and technology, and transform Ethiopia’s level of economic integration into the global market,” he said.

On the other hand, there are those who see a danger in the move. There is even a tendency to consider government decisions as the result of the imposition of the Bretton Woods institutions. They find that the Ethiopian banking sector is not fit enough to compete with giant foreign banks.

Commercial Bank of Ethiopia, the oldest and largest public bank with over 1500 branches across the country and a huge revenue generator, President Abe Sano spoke to state media about the decision of the government to open the banking sector to expatriate investors.

He sees a good side to it. But he also stresses the importance of exercising caution in the implementation of policy. He seems to subscribe to the arguments in favor of the opening of the market presented by the “Council of Ministers”. Yet he sees the threat that opening the door wide could pose to national banks.

As much as closing the sector to foreign investors has impacted the growth of local banks, Sano says, opening the door of banking services to the global market could pose dangers. He stresses the importance of finding a balance between the two.

He advised the gradual opening of the sector to international competition to ensure that local banks strengthen themselves in the face of competition.

He says international competition could create exposure to learn from international practices. But to avoid harming local banks, it is necessary to limit actions to expatriate banks.

It seems to suggest that local banks will become bigger shareholders when the banking market opens up to foreign investors. He believes the measure could transform the strength of local banks in a relatively short time.

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