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The World Bank (WB) stated that Ethiopia needs to open its financial sector in order to maintain the fast economic growth the country has registered for the last ten years.
“There are some necessary risks, and financial integration is a necessary risk. Ethiopia currently does not have a financial sector that has integrated with the rest of the world. Other countries that have been growing at the same rate as Ethiopia have been able to sustain the level of growth only by integration but in that process of integration you need to be careful,” Norman Loayza, Director for the World Bank’s 2014 World Development Report (WDR) said at the report’s launching event held at the Sheraton hotel on Friday November 22nd.
He also stated that with the high growth rate the country is registering each year, it is inevitable that there will be an internal force that will look for this integration. “The question is how you manage the integration and that is where some of the lessons from international experiences can be used,” he said.
“Regarding financial integration, it is a nice example of the tension between risk and opportunity; if you do not integrate at all you may not be able to take the opportunity but if you integrate maybe you will be more exposed to risk. I think part of the solution is in how you integrate and how quickly. Do you just open immediately without any control? According to the International Monitory Fund’s (IMF) advice, it is to keep some control, at least initially,” said Kyla Wethli, a 2014 World Development Report Core Team member.
According to Loayza, the solution to Ethiopia’s development problems is not on only focusing on the agrarian economy, but actually looking forward and recognizing that with time and with economic growth, the economy will become more diversified. “Then there is a role for both the government and private sector to facilitate that process of diversification,” he added.
In that regard, it was stated that the participation of markets is important as well as access to finance. “Ethiopia does not yet perform well in the comparison of doing business indicators which show that there is a long way to go in terms of streamlining regulations, for eliminating unnecessary procedures, in fighting corruption and other ills that prevent firms from forming and growing,” Loayza said.
Ethiopia was placed 127th out of 174 countries for ease of doing business, in a 2013 World Bank report