Monday, June 17, 2024

Financial sector opens to Diaspora


The Council of Ministers during its extraordinary meeting approved the Draft Banking Business Proclamation, allowing Diaspora to establish banks in Ethiopia.
The top government cabinet rescheduled their regular meeting from this weekend to Thursday May 2, during a busy week full of activity at the PM’s office. Because it was World Press Freedom Day, many international figures and global government leaders held talks with the PM. So meeting and making a decision during this busy time indicates the government considers this issue a priority, according to some who closely follow the banking sector.
Since the coming of Abiy Ahmed (PhD) as Premier the relationship between the Diaspora and the government has dramatically improved and significant bonds have been created since Abiy’s tour to North America and Europe.
With recent incidents, banks were forced by the Central Bank to identify Ethiopian shareholders and non-Ethiopians and to then sell the shares of non Ethiopians, who would change their citizenship to another nationality after purchasing shares of local banks or securing inheritances from family when they were not Ethiopian.
During that time the government ordered banks to sell the shares in an opening bid and settle the extra amount of the share value to the government. This meant banks that might consider one share as having a 1,000-birr value, may sell out the value by, for instance, 10,000 birr, and then transfer the extra 9,000 birr to the government by taking the original value which was 1,000 birr even though that money is not as valuable now since ten or twenty years may have passed.
A source at the central bank said that this action was one of the factors that would lead Diaspora to refrain from using legal ways of money transfer in the past few years in addition to boycotting and expressing anger with political suppression in the country.
The boycott has affected the country’s hard currency earning significantly since remittance was a major source of hard currency. In fact, it is even more than the country’s commodity export, which tacked on USD 3 billion, whereas legal remittances are close to USD 5 billion.
During the council meeting three issues were addressed in the draft proclamation.
The most highly anticipated one of these three documents was the amendment on banking business. The oldest proclamation affecting the financial sector excluded all non Ethiopian individuals from being involved in the financial industry whether they were Diaspora or not.
The new banking business bill, sent to parliament for final approval, would create an opportunity for Ethiopian born foreign citizens not only to buy shares of existing banks but create their own new banks in the country. They would be handled like other business that are opened to Ethiopian Diaspora but closed for other nationalities.
The amended proclamation also allows the existing banks to mobilize finances from not only local sources but overseas sources with the goal of expanding the country’s economic growth.
Experts at the Central Bank said that the government’s current strategy is creating a feeling of ownership in the Diaspora community. “The Trust Fund is one such strategy. Other financial sectors like insurance and microfinance schemes will also be opened for the Ethiopian community abroad,” a source at the National Bank of Ethiopia told Capital.
Financial experts explained that the current decision would allow the country to get more foreign currency through investment in the financial sector besides mobilizing deposits of foreign currency at existing banks.
“It will also play a big role in relinquishing the parallel market, which is now affecting the country’s official hard currency earnings,” an expert said.
The proclamation to provide for banking business No. 592/2008 stated that foreign nationals or organizations fully or partially owned by foreign nationals are not allowed to open banks or branch offices or subsidiaries of foreign banks in Ethiopia or acquire the shares of Ethiopian banks.
Sources said that the new proclamation has amended this but it will also include other financial businesses. The new law is considered the start of opening the financial sector to foreign investors, which has been one of the two major areas that members of World Trade Organization wanted Ethiopia to open.
Experts said the Continental Free Trade Area that the country recently ratified to open its market to African products and services with no tariffs will also push the country into such kind of decisions to be competitive in the continental market.
Besides opening the financial sector to the Diaspora the government also lifted the limit on Diaspora accounts, which was USD 50,000 until recently, to an unlimited rate.

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