Opening the Ethiopian Banking Sector to Foreign Investors: Advantages and Disadvantages (A Literature Review)
DOI:
https://doi.org/10.64137/31080030/IJFEMS-V1I2P103Keywords:
Ethiopia, Banking Sector, Foreign Investors, Liberalization, Advantages and DisadvantagesAbstract
For decades, the Ethiopian banking sector has remained closed to foreign investors. The government’s main rationale for restricting foreign participation was the concern that international banks being more financially robust, technologically advanced, and reputable would overshadow and weaken the growth of Ethiopia’s nascent and underdeveloped domestic banking industry. Recently, however, the government has enacted a new law permitting the entry of foreign banks into the country. This review examines the potential advantages and disadvantages of this policy shift. The anticipated benefits include the introduction of new financial innovations and technologies, increased foreign direct investment, accelerated economic growth, enhanced availability of foreign exchange, and greater facilitation of international trade. Moreover, foreign bank entry is expected to help alleviate Ethiopia’s persistent foreign exchange shortages. Nonetheless, significant risks exist if the reform is not carefully regulated. Without strong oversight by the National Bank of Ethiopia, the dominance of foreign banks may undermine local institutions and expose them to heightened vulnerabilities. The article concludes that while opening the banking sector presents important opportunities for Ethiopia’s economy, careful implementation and stringent regulatory frameworks are critical to safeguarding domestic banks and ensuring balanced, sustainable financial sector development
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