Ethiopia’s parliament has approved a landmark bill allowing foreign banks to operate within the country, marking a significant step in opening its tightly regulated economy to international investment.
The decision was announced on Tuesday by Fana BC, a media outlet closely associated with the Ethiopian government.
The legislation paves the way for foreign banking institutions to establish operations in Ethiopia and permits external investments in the banking sector, albeit with restrictions.
According to Addis Standard, foreign investors will be limited to holding a maximum stake of 49%.
“This is a major breakthrough, as it not only allows more foreign banks into the country but also attracts foreign capital to other sectors, fostering job creation,” said independent analyst Samson Berhane in a statement to AFP.
When Prime Minister Abiy Ahmed assumed office in 2018, he pledged sweeping reforms aimed at modernizing Ethiopia’s heavily state-controlled economy and making it more accessible to foreign investment.
However, progress was derailed by internal conflicts, including the devastating Tigray war (2020–2022), which severely strained the nation’s resources.
The new banking legislation aligns with broader economic reforms introduced in recent months, signaling Ethiopia’s intent to position itself as a favorable destination for global business.
In July, Ethiopia initiated a significant change to its foreign exchange policy, allowing commercial banks to set exchange rates independently.
The move, part of a bid to secure loans from the International Monetary Fund (IMF), represented a major shift from the previously rigid system.
Ethiopia, Africa’s second-most populous nation with approximately 120 million residents, experienced extraordinary economic growth between 2004 and 2019, averaging over 10% annually.
However, its economy has faced challenges in recent years due to the COVID-19 pandemic and global disruptions caused by the war in Ukraine.
Between 2020 and 2023, Ethiopia’s growth slowed to an average of 5.9%, while inflation soared from 20.4% to 30.2%, according to the World Bank.
The decision to liberalize the banking sector is expected to rejuvenate investor confidence and bolster the country’s efforts to regain its economic momentum.
