Native Ethiopians with foreign nationalities are being kicked out from the banking industry, unceremoniously. Banks have been forced to sell shares held by foreign nationals they had as shareholders following a new directive from the National Bank of Ethiopia (NBE). For the last two weeks, they have been holding public auctions and bidding off these shares, with Awash International Bank (AIB) taking the lead. The Bank has been offered a record-breaking 20,000 Br for a share, although such an offer was only for two shares.
Other banks are in the process of selling these shares forcefully stripped off shareholders who happened to hold different passports than their native land had issued to them.
The directive instructed banks and insurance companies to sell shares of non-Ethiopians at par value, and transfer any proceeds above these to the treasury. In effect, the non-Ethiopian shareholders were left robbed of the market value of their shares, which were offered 1,000pc higher.
Someone changing a citizenship is an event, and a personal one. Most of these shareholders were probably Ethiopian passport holders when they bought these shares. Some accounts put the total values of shares with banks owned by non-Ethiopians close to 40 million Br.
Certainly, the financial sector is one of the very few in the economy reserved only to nationals, alongside retail trade, media, legal practice and telecommunications. Ever since the financial sector was liberalized in the mid-1990s, non-Ethiopian nationals were banned from acquiring shares with banks and insurance firms. This does not mean, however, there were not individuals carrying different passports while retaining their shares with these companies.
It is no brainer for Teklewold Atnafu, governor of the central bank, to enforce the law. But the timing and the manner in which he goes about doing this beg questions. His decision compelling banks and insurance firms to auction these shares came as a surprise for the native Ethiopian shareholders, some of whom were founders but eventually changed their citizenship along the way.
The Governor’s action in handling this case is no less blatant violation of the constitutional provisions that guarantee individuals’ right to life and property. It is enshrined in Ethiopia’s constitution that no one should be deprived of their lives and property without due process, at open courts.
Should the purpose be to punish these shareholders for violating the laws of the land, the central bank is in as much complicity in the transgression; its officials, including the Governor, have been mute over the case for many years, fully knowledgable of what was going on. Neither should it be the business of the executive branch of the state to interpret the law and hold them accountable. That is the preserve of the judiciary.
The central bank has undermined constitutionalism by outright confiscation of these shares without due process. The foreign nationals who owned shares with banks and insurance companies should have been given time and options on transferring their shares either to family members or friends, or to sell them with prices they themselves dim worthy of the market, before taking such dramatic but consequential measures.
Understandably, many of the conducts of financial institutions are subject to regulations and supervision by the authorities; the central bank is one major federal agency entrusted to do this. But this does not exempt it to override the constitution but adhere to the rule of law and be accountable.
Although the banks and insurance companies are under strict regulations by the central bank and are willing to do whatever that is asked of them, there are times when they need to put their foot down and protect the interests of their shareholders. Regrettably, neither the banks and insurance firms nor the affected shareholders have the courage to challenge this at the House of Federation, the body entrusted with the interpretations of the constitution.
Board of directors of these companies, elected to ensure the wellbeing of their shareholders, should not have accepted the heavy-handed directive without a challenge. After all it is their shareholders that are affected by the decision, which kicked them out without even having them get the market values for their shares. It is odd and unbecoming of a government to simply take away property belonging to individuals whether they carry passports or have others issue.
The shareholders should have known that they have the right to go to court and contest the lawfulness of the actions by the central bank. To be treated like criminals and punished for wanting to invest in their home country after working abroad goes against decency.
Nonetheless, this issue goes deeper than whether a governor of a central bank acts decently or feels compassion in exercising power. The policy of closing the financial sector in general, and banning Ethiopian natives from investing in the industry, is only self-defeating. There is no persuasive rational behind this closed-door policy outbalancing the economy’s desperate needs to get capital, technology and skills from where it is available.
Policymakers have been on the record over the past two decades arguing that in the absence of strict regulatory capability, opening the finance sector is only a recipe for meltdown. Their fear is that stealthy foreign companies would cause the onslaught of domestic companies, a line of argument disputed among the industry leaders.
Policymakers are also concerned that allowing foreign nationals in the financial sector will lead them to lose control over the inflow and outflow of capital. It seems that this particular argument is used by politicians as a scarecrow, in a country where there is little capital to flee in the first place. Many businesses are now slowing down and some of them shutting down shops due to a terminal crunch in forex. There are so little resources to go around, policymakers cannot afford to turn indispensable capital away at a time when the shortage has reached a boiling point.
The lack of a strong regulatory system watching over the shoulders of domestic financial institutions or a limitation in bureaucratic capacity should not be the deciding factors on whether to open up the financial sector. Policymakers should not be discouraged and fearful of capital outflow in case of foreign companies’ entering the market. Instead, they need to focus on how to expand the sector and beef up its capacity as the case for liberalization from Vietnam to Mexico and from China to Brazil has demonstrated its worthiness.
There is indeed an overwhelmingly convincing case for gradual opening up of the economy and to reap the benefits.
Not too long ago, the government had warmed up to the Diaspora, offering an array of benefits for them to invest in their country of origin. They ranged from tax holidays to export incentives, and from extensive credit access to plots of land. Booting them from the financial sector is only a contradictory move that creates inconsistency and plants doubts in the minds of members of the Diaspora community, whose potential contributions to their country of birth is crucial.
Predictability and consistency should be a hallmark of a ruling party that has declared its intention to build “lily-white capitalism” as the EPRDF does. Being unpredictable and inconsistent with the way its functionaries practice political power is detrimental to this ambitions. This cannot happen if policymakers are obsessed with protecting the infant banks, and fearful of foreign investors. Ironically, opening the finance sector for foreign competition is simply inevitable.
There should be no reason why the native Ethiopians cannot own shares in the financial sector while many foreigners that are not native are able to own assets that give more leverage than shares with banks and insurance firms. The government is continuously working to attract these foreign investors, making sure they remain comfortable.
Native-Ethiopians with foreign nationalities have the capital, which they are willing to invest here. Their contributions is positive; after all it is their native land. They invest here for the betterment of their country, from whose advancement they can only benefit. They can only be a safer bet for the economy. To the contrary, kicking them out is a policy that is ill-advised as it is shortsighted.
Given that the authorities in charge of the national economy tend to be risk averse and in hyper-panic, a good start could be to let native Ethiopians own limited percentage of shares in the industry. They can for instance put a ceiling on how much a bank or an insurance firm can let native Ethiopians buy shares, while the goal of gradually opening up the whole sector for foreign competition in due course should be the direction.
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