Last week, the National Bank of Ethiopia issued a new directive-Manner of Relinquishing Shareholding of Foreign Nationals of Ethiopian Origin in a Bank or Insurer. This is an enforcement mechanism of its rule that no foreign nationals or organisations, in full or in part, own shares or establish banks or branch offices or subsidiaries of foreign banks in Ethiopia. Such a move has come following a circular last year that demanded the banks identify their shareholders who have citizenship other than Ethiopia and submit the list to law enforcement agencies.
The new directive states the potential criminal liability that will be imposed. It continues tightening the rope around the neck of the banks and foreign nationals of Ethiopian origins to drop out of their engagement in financial institutions at any level, irrespective of the proportion of shares owned by the foreign nationals. The statistics are tricky at any point, as the situation is volatile with shareholders having a chance of changing their citizenship any time and the banks and the regulatory bodies having no chance of tracing the change. Gross estimation ownership of shares by foreign nationals in the banking and insurance industry stands less than one percent, insignificant in the loose implementation of the rule.
The policy direction to keep out foreign giant players from the local sector was argued on many grounds. The two common arguments on which any other arguments have been anchored on is the ‘infant industry’ and the ‘cherry picking’ arguments. The main idea behind these is anticipated fear of undesirable outcomes of a skewed credit system, favouring large scale industrials and leaving behind the majority small- scale rural based ventures, disinterest in mobilising domestic saving and a high level of dependence on foreign banks for capital.
The over 20-year journey of the protected financial sector has failed to avoid some of the anticipated threats that the focus of private banks lending is still dominated in trade activities. Reaching out to micro-enterprises and small scale initiatives is still not the priority of the banks. It is only less than 10pc of the bank branch network spreading to rural areas over the 20 years and the rationale of strengthening a skewed credit balance does not serve its purpose. A population of almost100 million is too big for an international banking sector to ignore.
It is viable for the overall financial policy direction of building local capacity and buying time to work on regulatory frameworks and institutions rather than sticking to the same old arguments. This is two decades of lee way to work out on the issue and prepare. Be that as it may in the arguments against foreign banks’ involvement, the same arguments can not seamlessly transition to the rationale of keeping foreign nationals of Ethiopian origin out of the equation of the financial sector in general.
In Ethiopia where dual citizenship is not allowed, the country has introduced a new frame of engagement to ensure that the country gets benefits from contributions from people with Ethiopian origins. In 2002 a Proclamation allowed foreign nationals of Ethiopian origin to engage in all economic ventures and afforded them certain social benefits including pension rights. The only specific exception – as an exclusion, was the political sphere where they are prohibited from voting or being elected to any office at any level of government, and from being employed on a regular basis in national defence, security and foreign affairs or other similar political establishments .
There are two ways of looking at the rationale of allowing dual citizenship or not. The argument against lists potential burdens including increased immigration of outsiders, high crime rates , less employment opportunities , while those who promote the concept present their argument as leverage to increase the competency level of citizens. This opens door for larger room for the citizens to choose, optimise potentials, and increasing job opportunities to make global impacts.
Though some like Theodore Roosevelt, denounce the essence of dual citizenship as hyphenated citizenship challenging the arrangement on moral grounds as double allegiance to two countries is flawed, for countries like Ethiopia, as the context dictates the practical-temporal choice would not call for a heated debate.
While the overall argument can extend to the bigger picture of dual citizenship than a simple economic engagement and facilitation, what the law setting up the operational frame of banking prohibits any foreign national-institution and individual including Ethiopian origins not to have any interests in the banking industry. Such inconsistencies in the legal framework- the proclamation that provides nationals of Ethiopian origin with certain rights to be exercised in their country of origin (2002) and a proclamation that outlines the modus operandi of the financial sector (2008)- that ideally originates from same policy-casing needs a closer look and intervention.
Not only does the policy and legal inconsistency needs a revisit but also reexamination of application the rationales of keeping foreign banks out as a good enough to keep foreign nationals of Ethiopian origins. The rationales above too are problematic to fit to the rationales of keeping people of Ethiopian origins which the state believes has so much “to contribute to the development and prosperity.”
Against this backdrop of shaky rationales to prohibit involvement of foreign nationals of Ethiopian origin, what took place last week, calling all banks and insurance companies to relinquish existing shareholdings of the foreign nationals with Ethiopian Origins, came at the wrong time.
This time, when the country is at the last stage of joining the WTO, to which it had applied for accession over a decade ago, has to give it a last breath to finalise its housekeeping chores and strengthen the local capacity. The best way to start is revising the legal framework in such a way that it harnesses available resources for a smooth transition and builds institutional capacity which is far below what is necessary to entertain the global giant companies that are eager to launch activities in the country of 90 million plus.
One practical move is opening the door for foreign nationals of Ethiopian origin and mobilising resources from around the world. Practical evidence is available that such ventures have been instrumental in mobilising local resources. The recent resources mobilised to aid the Grand Renaissance Dam financing from these groups is pertinent both to the inclusive policy direction and the huge capacity it has in store to build a capital that can, if not match, at least withstand the pressure from foreign companies.
The country should not only allow the existing shareholding native Ethiopians to continue but immediately allow native Ethiopians to become bigger actors in the banking industry. Not only does it help produce a healthy taxpayer Ethiopian population, but also helps banks prosper and build their customers, as big international banks are about to compete with the local ones. This should be an opportunity for Ethiopian banks to build a strong foundation.
The country has now reached a stage where it can no longer afford to prioritise the constituency and forgo the long term economic gains. As a flicker to a gradual shift in the policy, the House of Federation has signed off on becoming a member of the African Trade Insurance (ATI). It has opened an office and kickstarted transactions with no limits.
Besides the need for the government to revise such areas and policy directions towards dual citizenship in the near future, moves like the one the Central Bank has taken are untimely and with no substantial gain to the local private banks, particularly in the 11th hour before opening up the sector and the country’s capital intensive economic growth. Short or long term political gains by way of impressing the local constituency, or excluding the native Ethiopian community from investing in crucial and stable business, while paying lip service to their contributions is a zero-sum game.
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