Ethiopia’s parliament has approved legislation allowing foreign banks to operate in the country, marking a significant step in the government’s efforts to attract foreign investment and modernize its economy.
The new law, passed on Tuesday, enables foreign banks to establish subsidiaries, open branches or representative offices, and acquire stakes in local banks. Ownership by foreign strategic investors in domestic banks, however, is capped at 40%, according to the legislation seen by Reuters.
This move is part of a broader push by Prime Minister Abiy Ahmed’s administration to open up Ethiopia’s tightly controlled economy, one of Sub-Saharan Africa’s largest, since his tenure began in 2018.
Ethiopia’s banking sector is currently dominated by the state-owned Commercial Bank of Ethiopia. While opposition lawmakers raised concerns about local banks’ ability to compete with foreign entrants, Central Bank Governor Mamo Mihretu argued that increased competition would ultimately strengthen domestic financial institutions.
With a population exceeding 120 million, Ethiopia has long been considered a potential hotspot for foreign investment. The country’s recent economic reforms, including floating its birr currency and adopting an interest rate-based monetary policy regime, were part of negotiations for a $2.9 billion International Monetary Fund (IMF) support program secured in July.
Despite these efforts, challenges remain, including lingering impacts from a two-year civil war and ongoing foreign exchange shortages, which have deterred investors in the past.
The legislation reflects Ethiopia’s commitment to further integrating its economy into global financial markets and addressing critical areas for continued growth.
