When Ethiopia announced its Banking Business Proclamation, the move was met with a mix of hope, skepticism, and confusion. For a nation balancing 30 private banks, a growing economy, and a hunger for foreign investment, the proclamation should have been a roadmap—a clear signal of where the country’s financial sector is heading. Instead, it feels like it’s neither here nor there: not quite closed, not fully open, and decidedly undecided.
As someone often mislabeled as being against foreign banks in Ethiopia, let me clear the air. I’m not against their entry. In fact, I believe foreign banks can play a transformative role—if their entry is handled strategically. The problem isn’t foreign banks. It’s a policy framework that lacks focus, clarity, and vision. The proclamation, instead of being a bold step forward, feels like it’s stuck in limbo, trying to appease everyone but satisfying no one.
The proclamation is riddled with contradictions. On one hand, it opens the door—albeit slightly—for foreign banks to enter the Ethiopian market. But then it imposes restrictive caps, heavy bureaucratic oversight, and unclear ownership rules. It’s as if Ethiopia is saying, “Come in, but don’t get too comfortable.” This hesitant approach risks alienating both local players and the very foreign investors the government hopes to attract.
Consider China and Vietnam. Both countries faced similar crossroads. They didn’t open their financial sectors blindly; they adopted clear, phased strategies. China capped foreign ownership and mandated technology transfers, ensuring local banks benefited from the influx of expertise. Vietnam allowed foreign banks to operate but maintained strong regulatory oversight to protect domestic interests. These were calculated moves, rooted in pragmatism. Ethiopia, by contrast, seems to be improvising.
An ideal proclamation would do three things:
- Define the Role of Foreign Banks Clearly
Are they here to fill capital gaps? Transfer knowledge? Drive competition? The current proclamation doesn’t articulate this. Instead, it oscillates between protectionism and token liberalization. If Ethiopia wants foreign banks to help modernize its financial sector, it needs to spell out their role and align policy incentives accordingly. - Strengthen Local Banks First
Ethiopia has 30 private banks, most of which are small and undercapitalized. The proclamation should have included measures to prepare these banks for competition, such as incentivizing mergers, improving governance, and encouraging digital transformation. Instead, it leaves them vulnerable to being overshadowed by foreign players, should the gates eventually open wider. - Send a Clear Signal to Investors
Investors thrive on predictability. They need to know the rules of the game. The proclamation, with its half-measures and vague directives, does the opposite. It raises more questions than it answers. Will foreign banks be allowed majority ownership in joint ventures? How will regulatory oversight be balanced with operational autonomy? Without clarity, Ethiopia risks scaring away the very investors it seeks to attract.
Ethiopia’s cautious approach might seem prudent, but it carries significant risks. By trying to strike a middle ground, the proclamation ends up pleasing no one. Local banks, already facing capacity constraints, see the potential entry of foreign banks as a threat rather than an opportunity. Foreign investors, meanwhile, are put off by the lack of a clear, welcoming framework. And consumers—women and youth entrepreneurs included—are left wondering when they’ll see the promised benefits of a more dynamic financial sector.
In economic terms, being “neither here nor there” means missing out on the best of both worlds. Ethiopia could emulate China by using foreign banks strategically to modernize its financial system while protecting local players. Or it could follow Vietnam’s path of gradual liberalization, allowing competition to drive innovation. Instead, the proclamation hovers awkwardly between these models, with no clear trajectory.
Why Open the Market at All? Some might ask, “Why does Ethiopia, a poor country with 30 private banks, need foreign banks at all?” The answer lies in scale, expertise, and integration. Local banks, while growing, cannot yet meet the demands of the African Continental Free Trade Area (AfCFTA) or finance large-scale infrastructure projects. Foreign banks bring global networks, advanced technology, and access to international capital—tools Ethiopia sorely needs.
But let’s not be naïve. Foreign banks aren’t charities. They’re profit-driven entities that prioritize lucrative markets and low risks. Ethiopia must engage them on its own terms, using policy to channel their resources into productive sectors like manufacturing, agriculture, and export financing. That requires a proclamation with teeth, vision, and coherence—qualities the current one lacks.
Ethiopia stands at a financial crossroads. The Banking Business Proclamation should have been a bold, clear step forward. Instead, it’s a hesitant shuffle sideways. It opens the door to foreign banks but doesn’t prepare local banks for competition. It invites investment but scares off investors with ambiguity. It’s neither here nor there.
To move forward, Ethiopia must learn from the likes of China and Vietnam. These nations didn’t just let the wind blow—they built windmills to harness it. Ethiopia, too, must decide: will it leverage foreign banks to build a stronger, more inclusive economy? Or will it keep building walls, isolating itself from the opportunities of globalization? As someone often mislabeled as being against foreign banks, I can only say this: let them in—but on Ethiopia’s terms, with a proclamation that’s clear, confident, and visionary. Anything less is just more wind.
