Business
Ethiopia: Infrastructure boom attracting continental banks into the country’s closed financial sector
By Allan Olingo
Two years ago, at a breakfast in Kenya’s capital, Nairobi, hosted by Kenya-based Equity Bank, Ethiopia’s Prime Minister Hailemariam Desalegn said his country was not ready to open up its market to foreign banks.
“It is going to be a challenge liberalizing our banking market and allowing foreign banks in. This is because they will raise the cost of credit and slow our growth. We have our own banks, like the Development Bank of Ethiopia, which create a balance in the sector,” Hailemariam said.
The Ethiopian prime minister was responding to Equity Bank CEO James Mwangi’s request for access to the more than 80 million unbanked people in the country.
At the Economist Ethiopia Summit held in Addis Ababa on October 28 and 29, the country’s financial sector was at the center of the discussions. Government officials told the participants that it was not yet time to open up the sector to foreigners, although the government has plans to do so later. However, in the past week, Kenya’s and South Africa’s largest banks by asset base have announced that they will be entering the Ethiopian market.
Kenya Commercial Bank (KCB) said its licence to open a representative office in Ethiopia would open up opportunities in Africa’s second-largest market by population. “We hope that the Addis Ababa’s sales office will enable us scout for deals and opportunities in the country,” KCB said.
The banks are hoping to prospect for business using representative offices, grow their loan books through financing deals in Ethiopia’s open agricultural and manufacturing sectors, and angle for financial consultancy services for multimillion-dollar projects.
Pan-African bank, Ecobank, established a representative office in the country last year, and Equity bank, Kenya’s second largest bank, is in the process of getting approvals to open.
Standard Bank’s chief executive Ben Kruger said they hope to use the bank’s presence in Addis Ababa to facilitate trade between Ethiopia and other east African countries. The bank’s trade finance portfolio is one of its key business segments.
“We are able to leverage our strong position on the continent, our strategic partnership with the Industrial and Commercial Bank of China (ICBC), and our sector expertise in natural resources, to facilitate capital investment in support of growth and to connect African markets to each other,” Kruger said. “We will be well-positioned to take advantage of the cross-sectoral investment opportunities in Ethiopia and the region,” he added.
In February, ICBC, a Chinese government-owned banking group, bought 60 percent of South Africa’s Standard Bank London subsidiary for US$690 million.
