Ethiopia’s parliament has passed a long-anticipated law permitting foreign banks to operate within the country, marking a significant step in the government’s efforts to attract overseas investment.
The move is part of broader reforms under Prime Minister Abiy Ahmed, who has been gradually opening Ethiopia’s tightly regulated economy since taking office in 2018. Despite these efforts, challenges such as a two-year civil war, slow reform implementation, and a persistent foreign exchange crisis have hampered investor confidence.
The newly approved legislation enables foreign banks to establish subsidiaries, open branches or representative offices, and acquire shares in local banks. However, the law places a 40% ownership cap on local banks for foreign strategic investors, according to a draft seen by Reuters.
Ethiopia’s banking industry is currently dominated by the state-owned Commercial Bank of Ethiopia, with limited competition. While some opposition lawmakers raised concerns over the ability of domestic banks to compete with foreign entrants, Central Bank Governor Mamo Mihretu argued that the increased competition would ultimately strengthen local institutions.
With a population exceeding 120 million, Ethiopia is one of Africa’s largest markets and has long attracted interest from global investors, despite its economic isolation for decades. The country’s recent reforms, including floating the birr currency in July and transitioning to an interest rate-based monetary policy, have been pivotal in securing a support program from the International Monetary Fund (IMF).
The law’s passage signals Ethiopia’s readiness to integrate further into the global financial system, offering new opportunities for both local and international stakeholders.