Ethiopia’s financial reforms hold promise for its diaspora business community

Image: REUTERS/Maheder Haileselassie Tadese
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Ethiopia’s parliament this week passed a bill to allow members of the Ethiopian diaspora, who have taken up nationalities in other countries, to invest, buy shares, and set up lending businesses in the country’s state-dominated financial sector.

It’s the latest step in a general push to liberalize the country’s economy. The government has previously said it will privatize Ethio Telecom, the state-owned telecommunication monopoly.

Since Ethiopia does not allow citizens to have dual nationalities, the latest round of reforms is seen as good news for the country’s 5 million-strong diaspora community as well as Ethiopians with foreign nationalities living inside the country.

The government has been eyeing overhauls to the financial sector, along with other sectors, since Abiy Ahmed’s appointment as prime minister. But authorities, including the head of the country’s central bank, have previously claimed liberalization of the sector could take “some years”, and called for preparation ahead of any full-scale effort that might create an influx of international banks, and hurt local lending practices.

Some see the opening up of the financial industry to the country’s diaspora community as a trial run for its eventual full liberalization, a move that excites Ethiopian investors abroad. “It will be great for both the country and diaspora community to be able to invest in the whole financial sector,” says Kassy Kebede, founder and managing director at Cepheus Growth Capital, a New York-based Ethiopia focused private equity fund.

Outside of the US, Mimi Alemayehou, a Dakar-based managing director of the investment platform, the Black Rhino Group, says she is keen to invest, and has spoken with other Ethiopians in the diaspora who are looking to do the same.

Despite intra-communal violence which has left over 2.6 million Ethiopians internally displaced in 2018, and Abiy’s ongoing challenges to govern the multi-ethnic country, the diaspora’s personal connection to Ethiopia makes them less risk-averse to invest, Mimi says, and investors “are willing to work with the country as it transforms.”

Targeting the diaspora for Ethiopia’s economic growth has been a recurring theme by the prime minister. Last year, Abiy set up a council for the Ethiopian Diaspora Trust Fund, a non-profit organization which raises money from the global diaspora community, and works alongside the government to build development projects in Ethiopia. The call was simple: donate $1 a day to restore your home country. Ethiopians in the diaspora listened, and so far, the organization has raised over $4 million for projects in financial inclusion, entrepreneurship development, and much more.

Birhanie Beka Geleto, a finance director at the DC-based consulting firm, Dewey Square Group says the opening is a good opportunity for the diaspora to bring “technology advancement in the industry with them.” Digital transformation is something the country has in mind, with Ethiopia’s parliament placing provisions in the recent overhaul to allow the private sector to operate digital-based financial services in the country.

While the general mood of investors and business leaders seems to be positive, some analysts are employing a wait and see approach. “We have a tendency of believing our investment helps political success of the government,” says Ephraim Kebede, an economist based in Washington DC. While finance, much like real estate, will benefit from diaspora investment, Ephraim argues diaspora-based investors have to be careful with mixing business and politics, and weigh their investment options before jumping into the newly-opened sector.

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