Ethiopia will allow foreign banks to set up local subsidiaries and foreigners to acquire stakes in domestic lenders, according to a draft law approved by the cabinet on Friday, as part of the government’s broader plan to liberalize the economy .
This country of more than 100 million people is one of the largest economies in sub-Saharan Africa and has long been coveted by foreign investors after being closed for decades.
Authorities are opening the country to foreign investment in sectors such as banking, telecommunications, transportation and aviation.
“A well-established, reputable and financially sound foreign bank may be permitted to establish (a) partly or wholly owned foreign bank subsidiary, or to open a foreign bank.
or a representative office, or to acquire shares of a bank,” the bill states.
The bill, which lawmakers must first pass, stipulates that subsidiaries of foreign banks must include non-Ethiopian local residents on the board of directors.
The overall shareholding of foreign nationals and foreign-owned Ethiopian organizations in a bank will be limited to 40 percent of the total shares, according to the bill. The direct participation of strategic investors will be limited to 30%.
“These legislations represent an important step in establishing a solid foundation for growth and strengthening the credibility, accountability, transparency and governance of the National Bank of Ethiopia,” said the central bank in a press release.
Ethiopia’s banking sector is dominated by the state-owned Commercial Bank of Ethiopia, and the sector has 29 players, all locally owned.
In May last year, the central bank announced it would offer five banking licenses to foreign investors within five years.
