Johannesburg - Lenders
are lining up to establish a presence in Ethiopia, one of Africa’s
fastest-growing and most under-banked economies. Now they need the government
to let them open their doors.
Over the past two
years, Standard Bank Group, Africa’s biggest lender by assets, and KCB Group,
Kenya’s largest lender, have joined the likes of Citigroup, Commerzbank and
Ecobank Transnational in setting up representative offices in sub-Saharan
Africa’s second-most populous country. The lenders are hoping the government
will eventually start granting licenses for fully fledged branches.
They’re wagering
that the country’s ambitions to join the World Trade Organisation, coupled with
increasing demand for capital to support the economy, will lead the government
to open up an industry that’s been closed to investors since a Marxist junta
nationalized banks four decades ago. Still, they’ll be investing in a country
that’s cracked down on political opponents, with the benefits of faster growth
yet to trickle down to the majority of the population.
“It has the
potential to become one of the most exciting banking markets in the region,”
said Robert Besseling, Johannesburg-based director at Exx Africa, which advises
companies on business risks on the continent. “Government has hinted at
liberalization and even privatization of state-protected sectors.”
Exciting market
The prize is a $62
billion economy of 105 million people that’s grown quicker than any other in
sub-Saharan Africa over the past decade and may expand 7.5 percent this year,
according to International Monetary Fund data. Only 22 percent of adults in
Ethiopia have access to a bank account, compared with 70 percent in South
Africa, the continent’s most industrialied economy, and a sub-Saharan African
average of 34 percent, according to World Bank statistics.
The country’s two
state-owned banks, Commercial Bank of Ethiopia and Development Bank of
Ethiopia, account for more than half of the industry’s assets, with the rest
split between 16 other lenders, while about 11 foreign companies have been
allowed to open representative offices. These so-called rep offices allow the
lenders to meet with clients operating in Ethiopia and advise them on issues
like cross-border trade while learning more about the economy. With just a rep
office, the foreign lenders can’t take deposits, open branches or offer
full-service banking.
Read also: Standard Bank moves into Ethiopia
Total capital in
the banking system increased by 26 percent to 46.4 billion birr ($2.04 billion)
in the three months through September, compared with the same period a year
earlier, according to the central bank. The value of new loans granted during
the quarter increased 20 percent. In comparison, South African banks, the
continent’s largest, control assets of at least 4.8 trillion rand ($366
billion).
“We’re optimistic
that the financial regulations in Ethiopia will continue to evolve to deepen
financial inclusion,” said Lawrence Kimathi, chief financial officer of
Nairobi-based KCB Group, which opened a representative office in the capital,
Addis Ababa, last year.
The government’s
growth and transformation plan for the five years through 2020 doesn’t allow
for the sale of stakes in local banks to foreign lenders, or for those wanting
to enter the market to start their own operations. Governor of the National
Bank of Ethiopia Yohannes Ayalew referred only to that document when asked by
Bloomberg on February 10 if rules might be relaxed this year.
Retain control
“I doubt they’ll do
it,” said Maurice Oduor, a money manager at Nairobi-based Cytonn
Investments Management, when asked if Ethiopia will give full banking licenses
to foreigners this year. “But if they do, it won’t be 100 percent, they will
likely want to control employment terms and things like profit repatriation.”
Ethiopia isn’t
without risk. The government declared a state of emergency in October to deal
with protests by ethnic communities who said they were being pushed off their
land. As a result, foreign direct investment dropped by a fifth in the first
half of Ethiopia’s fiscal year that began in July. Much of the country’s
continued growth has been due to the dominance of the state.
The state has
previously said that the opening of vital industries won’t occur until the
government is able to regulate them effectively and domestic businesses
can compete with foreign companies. The currency has weakened 5.3 percent over
the past 12 months.
“We have seen
increasing interest from investors in Ethiopia’s economic growth,”
said Kate Johns, a spokeswoman for Johannesburg-based Standard Bank. “We
have key clients who are currently operating, or seeking to establish
themselves, in Ethiopia.”
Nigerian lenders
will also be keen to expand in Ethiopia as economic growth slows at home,
according to Doyinsola Afolabi, a banking analyst at Afrinvest West Africa in Lagos,
citing Guaranty Trust Bank, Access Bank Plc, United Bank for Africa, Zenith
Bank Plc and FBN Holdings as likely investors.
“The closed banking
sector could be eventually be opened up for foreign investment,” said Exx
Africa’s Besseling. “Although it might not be in 2017.”