ADDIS ABABA, Ethiopia — In one of the most consequential economic policy shifts in decades, Ethiopia’s central bank announced Wednesday that foreign banks and strategic investors will now be allowed to enter the country’s long-protected financial sector — a move analysts say could transform the investment landscape of Africa’s second-most populous nation.
Under the new directive issued by the National Bank of Ethiopia, foreign financial institutions can apply to establish local branches, subsidiaries, or representative offices.
The regulation also permits strategic foreign investors to acquire up to 40 percent equity in domestic banks, breaking a long-standing barrier in one of Africa’s most closed banking markets.
“This is a bold and timely step,” said Alemayehu Zewde, a financial consultant based in Addis Ababa.
“For years, international banks have eyed Ethiopia as a sleeping giant. Now, they finally have a legal pathway to enter.”
The reform is part of a broader liberalization strategy backed by the International Monetary Fund (IMF), which has been supporting Ethiopia’s economic transition amid post-conflict recovery, fiscal consolidation efforts, and a mounting external debt burden.
The IMF welcomed the announcement, citing improved investor confidence and greater competition as key benefits for Ethiopia’s underdeveloped financial services sector.
Ethiopia’s banking industry has long been dominated by state-owned and politically connected private banks, operating within a tightly controlled regulatory environment.
Foreign lenders, including pan-African institutions and Gulf-based banks, have repeatedly lobbied for market access, arguing that Ethiopia’s 120 million-strong population represents a significant untapped market.
Economists say the directive could unlock billions in foreign direct investment (FDI), inject greater liquidity into the domestic banking system, and accelerate digital financial inclusion — particularly in rural areas where formal banking remains scarce.
Still, some experts caution that the sector’s readiness for external competition remains uneven.
“Ethiopia needs strong regulatory oversight and institutional reform to absorb this transition,” said Selam Getachew, a former central bank adviser.
“Without that, the benefits could be delayed or even destabilizing.”
The announcement comes as Prime Minister Abiy Ahmed’s administration projects 8.9 percent GDP growth for the upcoming fiscal year — a target driven in part by reforms in banking, telecom, and logistics.
But the government also faces rising discontent over inflation, unemployment, and a growing civil service strike among health professionals and educators.
Despite the domestic pressures, the move has already drawn interest from multinational financial players. Inquiries from banks in Kenya, South Africa, the UAE, and the United Kingdom are expected in the coming weeks, according to two individuals familiar with discussions at the National Bank.
“This is a turning point,” said an IMF official, speaking on condition of anonymity. “It signals Ethiopia is finally serious about opening up — not just talking about it.”
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