In the complex machinery of labor migration, the primary role of a responsible government is to protect its citizens from exploitation while ensuring the efficient flow of remittances. It is with considerable alarm, therefore, that we view the recent directive from the Ministry of Labor and Skills. By mandating that overseas employment agencies deposit all monies—likely including service fees, security bonds, and commission payments, exclusively into accounts held at four state and selected private banks only. The Ministry has not only overstepped its regulatory mandate but has constructed a dangerous impediment to market efficiency.
This edict is not merely bad policy; it is a move to illegality, standing in direct violation of established economic principles, domestic banking law, the supreme law of the land, and international treaty obligations.
The Economic Distortion: Creating an Oligopoly of Inefficiency
From a purely economic standpoint, the Ministry’s directive is an intervention that introduces significant deadweight loss. By dictating the specific financial institutions with which private businesses must contract, the Ministry has effectively created a government-sanctioned oligopoly. This action violates the fundamental principle of a market economy: the freedom of contract and the efficient allocation of resources.
When agencies are forced to use only the Commercial Bank of Ethiopia, Dashen, Abyssinia and Awash banks only, they lose the ability to shop for competitive exchange rates, lower transaction fees, or superior service and business loans. This increases operational costs. In economics, an increase in transaction costs inevitably leads to a reduction in the volume of trade, and creativity to broaden the sector, this case, the formal processing of overseas employment. This artificially raises the price for the migrant worker, or squeezes the margins of agencies, potentially driving them toward financial loss. Furthermore, it stifles the private banking sector, denying other licensed private banks the liquidity and transaction volume necessary to grow and compete, thereby weakening the very financial liberalization the government claims to seek. The overseas employment agencies security deposit or Commission at any licensed Ethiopian banks must have equal weight. All licensed Ethiopian Banks are equal and must get equal share in competition for better service. BY forcing Ministry’s mandate only in four selected banks, it destroys the long time business relation overseas agents foster with different banks.
The Legal Infraction: Violating NBE Autonomy and the Commercial Code
Legally, the Ministry is venturing into territory constitutionally and statutorily reserved for the National Bank of Ethiopia (NBE). Proclamation No. 1359/2025, the National Bank of Ethiopia Establishment Proclamation, vests the sole authority to regulate banking business, manage foreign exchange and the movement of capital in the NBE. The NBE licenses banks to ensure they are fit to operate; no other Ministry has the authority to deem a licensed financial institution “unfit” for a specific private transaction by regulatory avenue.
Moreover, the Ethiopian Commercial Code guarantees the autonomy of private businesses. Forcing a private employment agency to enter into a contractual relationship with a specific bank violates the principle of freedom of association and contract enshrined in the Code. If an agency wishes to bank with Cooperative Bank of Oromia or Zemen Bank, ABAY Bank or any other bank to secure better services for the deposits they need or to bring quarterly report to the Ministry, the Ministry has no legal standing to void that commercial judgment.
Constitutional Overreach: Infringing on Liberty and Equality
Perhaps most egregiously, this directive runs counter to the Constitution of the Federal Democratic Republic of Ethiopia. Article 41 of the Constitution guarantees every Ethiopian the right to engage in any economic activity. By restricting the financial partners an agency can choose, the Ministry is curtailing the economic rights of those agency owners and their ability to freely conduct business.
Furthermore, the directive creates an unequal playing field. It grants a select few banks a windfall of guaranteed deposits without any competitive tender. This is a violation of the constitutional principles of equality and the right to equal protection of the law (Article 25). Why should a bank that is not on the “chosen four” be denied the opportunity to service this sector? The answer, from a legal standpoint, is that it should not be.
The International Dimension: Breaching Trade Commitments
Finally, this directive places Ethiopia in a precarious position regarding its international commitments, particularly as it negotiates accession to the World Trade Organization (WTO). The WTO’s General Agreement on Trade in Services (GATS) prohibits quantitative restrictions on financial services. While Ethiopia is not yet a member, the principles underlying the accession process require adherence to non-discriminatory practices.
More specifically, by forcing financial transactions through a closed loop of state-favored banks, the Ministry is creating a technical barrier to the free flow of remittances and payments. International banks corresponding with Ethiopian banks operate on a network of trust and efficiency. If payments are bottlenecked through four institutions, it could be viewed as a restrictive practice, potentially triggering retaliatory measures or complicating correspondent banking relationships, which are already fragile.
Conclusion: A Call for Withdrawal
This directive appears to be a misguided attempt to “secure” Ethiopian overseas agent’s funds or simplify oversight. However, security is not achieved by creating monopolies; it is achieved by fostering a competitive, well-regulated financial sector. The Ministry of Labor and Skills is not a central bank, and it must stop acting like one. Let all Banks engage in the Ministry requirement deposit to agencies under Ethiopian ministry of Labor and skills criteria.
I urge, as an economist, the Ministry to immediately withdraw this directive. It breaches the mandate of NBE as a sole regulator of Commercial Banks in Ethiopia. If there is a need to ensure funds are secure, the proper channel is to request the NBE to issue a standard of financial probity for all licensed banks, not to handpick winners and losers. By ignoring the Constitution, trampling on commercial law, and distorting the market, the Ministry is not protecting migrants; it is undermining the very economic foundations Ethiopia needs to compete in a world stage for strong labor market and able overseas employment sector.
