The article Ethiopia leaves door ajar for for- eign investors by Neil Ford in African Banker Q2 is a brilliant anal- ysis of Ethiopia’s largely closed financial services sector.

However, Ethiopia is not an exceptional case. In many parts of Africa, because of the colonial legacy, state control of the financial services sector held back access to finance, and economic empowerment.

One of the key issues was the lack of access to foreign exchange. The tight grip on foreign currency transactions was also a major obstacle to economic growth. Accessing foreign currency from banks or other financial institutions was never easy for manufacturing companies wanting to import plant and machinery, or those in the retail trade seeking to import consumer products.

Accessing foreign currency was identified as one of the greatest obstacles to sustaining enough growth and prosperity for African citizens.

It was only after the 1990s, in the wake of new concepts of economic transformation, that we saw the emergence of a global era of liberalisa- tion. States started loosening their grip on many key parts of the economy, giving leeway to banks and other financial institutions to freely buy and sell hard currencies. The spread of globalisation that ensued opened up many new markets and pointed to a new era of in- creased prosperity.

Globalisation also ushered in a new period of free trade, with protectionist measures being discarded, import levies reduced and a general acceleration in the volume of trade, with govern- ments taking a back seat and the private sector coming into its own. Foreign exchange was allowed to find its own level as restrictions were removed in most of the major economies and the majority of emerging markets, including in Africa, by and large.

One result was a sharp rise in the volume of direct foreign investment as companies, no longer worried about repatriat- ing profits and capital, set up foreign subsidiaries and fran- chises, often in collaboration with local investors.

But many African states, with unconvertible and weaker cur- rencies, or wedded to socialist ideals as in Ethiopia, retained control of the ownership of businesses, especially in natural resources, and kept a tight hold on banks.

Over the last two decades, African banks, once some of the weakest in the world, have be- come powerful engines of eco- nomic growth. Banks in Nigeria, Kenya, South Africa, Morocco and Egypt in particular, ex- panded rapidly and continue to generate vast profits.

They have been among the earliest to adopt digital and other new technologies and in some instances, such as in the case of Safaricom and its M- Pesa system, lead the world. A good deal of this progress has come as a result of foreign in- vestment and collaboration with global entities.

The industry in some of the smaller African countries has been much slower in adapting to new technologies and the industry there has stagnated. However, thanks in large part to the advocacy work carried out by pan-African institutions such as the African Develop- ment Bank and Afreximbank, private technology providers like Backbase, the mushroom- ing of fintech start-ups and in no small measure to the vital awareness created by publica- tions like African Banker, the tide has been turning, even among the least developed economies.

In this context, it is encour- aging to note that Ethiopia, which has bucked the trend for so long, is now gradually opening up its finance industry to foreign capital and more signif- icantly, to the injection of new ideas, approaches and processes that this allows. Given the size of its population and economy, the modernisation of Ethiopia’s financial system is long over- due. It would appear, from your article, that the first steps have already been taken.

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