|Could you give us an overview
of the Ethiopian economy and the finance sector of the
It is a well-known fact that Ethiopia is one of the
poorest economies in the world, having a per capita
income of about only 110 US dollars. Ethiopia's economy
is heavily dependent on the agricultural sector, which
is also characterized by a backward mode of production
and a very low productivity. On average, nearly 45%
of the total GDP is generated from the agricultural
sector. When we analyze the growth of the GDP for the
past ten years (1992-2002), the GDP has grown by an
annual average of 5.3%.
Besides that, the country has enjoyed macro economic
stability during the last 10 years, which means inflation
was contained at a single digit and on the average it
remained below 3%. The economy was even in a deflationary
state, particularly during 2001 and 2002, the inflation
rate was negative 5.2% and 7.2 % respectively, mainly
due to the bumper agricultural production. Fiscal deficit
has also averaged 6% of GDP during the last 10 years.
During these 10 years time, the foreign exchange rate
was stable and thus the gap between the official and
the parallel market rate has been significantly reduced
to a mere 1% at the end of March 2003 as compared with
about 270% before 1992. However, the terms of trade
continued to adversely affect the country and thus our
trade balance was in deficit. In 2001/2002, for instance,
the trade deficit reached 1.26 billion USD. This has
happened because of the dramatic and persistent fall
of the international price of coffee which accounts
for about 40% of the total export earnings. This adverse
situation has also contributed to the widening of Ethiopia's
current account deficit. On the other hand, the overall
balance of payments, of recently, has turned into surplus.
For example, about USD 300.3 million surplus was registered
in 2001/2002 against a deficit of USD 70.5 million in
2000/2001. This was largely attributed to the substantial
inflow of foreign funds in support of the ongoing poverty
reduction support programs.
The financial sector in Ethiopia is generally underdeveloped
and the menu of financial services is very limited:
there are only 9 banks with a total of 327 branches
in the country. This makes Ethiopia one of the most
under-banked countries in Sub-Saharan Africa. And the
ratio of branches to population is 1:205,000 compared
with 1:120,000 in Sub-Saharan Africa.
What are you doing to adapt your banking system
to international standards?
The National Bank of Ethiopia has taken several measures
during the last 10 years in order to stand to its duties
and responsibilities of creating sound banking system.
First, we have tried to restructure the National Bank
of Ethiopia itself in order to give support to the banking
system as well as to enhance supervisory and regulatory
capacity of the Central Bank. So, we have established
the supervision department that is in charge of licensing
and supervision of banks, insurance companies and micro
We have also reorganized our international banking
department and transferred the regulation of retail
international banking operations to commercial banks
while we stick to policy issues, such as, management
of international reserves, undertaking of inter-bank
foreign exchange market, etc. The National Bank of Ethiopia
is also using international prudential standards with
regard to capital, asset management, liquidity and so
on to ensure the soundness of our banking system.
We have issued various regulations and we are monitoring
and following up whether all commercial banks are implementing
the regulations or not. We have also increased the paid
up capital of the commercial banks from Birr 10 million
to Birr 75 million in order for these commercial banks
to be competitive and financially strong. We have already
allowed private banks as well as public commercial banks
to enter into management contract with foreign institutions
in order to enhance their managerial and technical skills
if they wish to do so.
| Could you rate the foreign
investment in Ethiopia currently, has it increased during
the past ten years?
Yes, it has increased a lot because so many reforms
have been made in this respect. First, the government
has allowed domestic private investors to invest in
the financial sector. As a result, the number of commercial
banks increased to 9 compared to 3 in pre-reform period
and the number of branches went up from 216 in 1995
to 327 by end 2002. The number of insurance companies
has also increased from one to 9 during the same period.
Moreover, 21 micro finance institutions have been established
to give credit to low in come groups both in urban and
Secondly, in 1992, we devalued our local currency,
Birr, by about 59% against the US dollar in order to
make the external trading environment attractive. Since
then, the foreign exchange rate has been allowed to
depreciate slowly through foreign exchange auctions.
Currently, the foreign exchange rate is determined on
the daily inter-bank market.
Thirdly, current account has been fully liberalized
for import and other invisible transaction purposes.
If any investor wishes to get foreign exchange, it is
available without any restriction; he/she can even repatriate
his/her dividends and profits. We have introduced a
lot of incentives: like tax and tariff reduction, easy
licensing procedure, etc., to encourage investors. Investment
and labor codes have also been subsequently revised
to promote private investment.
To what extent are you working with international
finance institutions like the IMF or World Bank?
Our relationship with the IMF and World Bank is very good.
They support us in our poverty reduction and growth facility
program. We are also eligible for HIPC initiative designed
for poor countries. In this respect, we have already reached
decision point in 2001 and we are hoping to reach completion
point by end 2003. In effect, these financial institutions
as well as other bilateral donors provide us debt relief
grants, and technical assistance.
What would be your message to investors who want
to invest in Ethiopia?
The Ethiopian government has created a conducive and
friendly environment for domestic and foreign investors.
Accordingly, as indicated above, the investment and
labor codes have been subsequently revised in order
to promote investment. The foreign exchange rate is
determined in the inter bank market and it has been
stable for the last 10 years and it will remain so in
future. Inflation has been reduced substantially and
we hope it will continue to remain in a single digit.
So, we can readily say that there is macro economic
stability in Ethiopia.
Ethiopia has restored peace and security, which is
very important for investors. Privatization of public
enterprises has been underway. We are also in good relations
with the IMF, World Bank, as well as the European Union
and other bilateral donors.
Ethiopia is a good destination for direct investors.
Besides a conducive environment created by the government,,
Ethiopia has natural factors which are quite important
for investment. It has a population of more than 68
million, which is a great potential for a wide market
and cheap labour force. Moreover, our strategic location
close to the Middle East and Europe, is advantageous
for investors. Therefore, we kindly invite investors
to invest in Ethiopia and become our development partners
for our mutual benefit.
Could you tell us about your professional background?
I hold a BSc degree in Statistics with minor in Economics
as well as MSc in Statistics/Econometrics. My MSc thesis
was on building a model, on econometric measures of
the demand for and supply of money in Ethiopia. I also
earned an MBA in financial management from one of the
US universities in distance education. I attended several
courses at the institutes of the IMF and the World Bank.
So I have got 4 certificates from the institutes in
financial programming and policy, techniques of financial
programming and analysis, macro economic management,
and Money and Banking.
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