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Ethiopia’s financial sector is set to open, with the government’s new plan to come up with a new policy that will open the market, albeit to a limited extent, to international actors. The move is aimed mainly at the relative liberalization of capital goods and lease financing. Hailed by experts as a historic move in the country’s financial sector, the recent decision was passed by the National Investment Board, chaired by the Prime Minister, according to the Ethiopian Investment Commission.
Strict regulations limiting any foreign investment or involvement in the financial sector have long been criticized for placing athrottle hold for the sector as well as local investors.
The move towards a more inclusive financial sector stated about two and half years ago, when the government has amended a ‘capital goods leasing business law’ that allowed more access to  parts of financial sector in the country. The amendment was bonded only for local investors, as with other financial investments and excluded foreign investors including Ethiopian diaspora.
Since then, few private and state financial firms were able to do business, but weaknesses in capital were apparent. The new move will allow the involvement of international companies on the hire and purchase in the financial lease sector as stated on the capital goods leasing business proclamation.
The capital goods finance business proclamation has three distinct categories; operating leasing, finance lease and a hire-purchase, while operating leasing is open only for local companies. However, the new amendment will allow investors to buy machineries on hire purchase or credit purchase via international capital goods financing companies.
The country is strictly refusal in the past to opening the financial and telecom sectors to international markets has been a major delay in Ethiopia’s decade long negotiations for a World Trade Organization (WTO) membership.
The recent move is expected to help the government’s bid to conclude negotiations with WTO in the current five year Growth and Transformation Plan period.
The capital goods financing business is commenced in the past GTP period with the aim to boost the private sector mainly the manufacturing sector. However, despite local firms’ efforts in operations and service provision, limited capacity of financing firms have limited the level of investment, and investment partnerships.
Experts say that the current initiative will allow companies to access services from capital goods financing firms to solve financial shortages.
In an unrelated development, the financial institutions supervisory body, National Bank of Ethiopia, has issued a new directive about the performance reporting of capital goods financing companies.
The ‘Manner of Financial and Operational Information Reporting’ directive will be effective as of tomorrow, February 1 and capital goods financing companies have to submit their report on a quarterly basis.
NBE also stated that the directive will seek to obtain complete and relevant data from companies engaged in capital goods finance and enables the identification of inherent risks associated with each company and the sector at large.