Kenyan banks on high alert as Ethiopia relaxes entry rules

Kenya President Uhuru Kenyatta (left) with Ethiopia Prime Minister Hailemariam Desalegn in Moyale, Marsabit County, during the launch of a cross-border peace initiative on December 7, 2015. PHOTO | PHOEBE OKALL | NATION MEDIA GROUP

What you need to know:

  • And in March this year, Cooperative Bank of Kenya CEO Gideon Muriuki said the lender would pursue its regional expansion plan in Ethiopia modelled on the joint venture partnership for its South Sudan subsidiary in which Government of South Sudan has a stake in the lender.

The April 5 2016 decision by the Ethiopian Parliament to relax restriction on foreign financial institutions into its markets is being seen as a watershed moment in the unfolding story of the country’s economic transformation currently underway.

Ethiopia’s Parliament made the amendments to the stringent rules as it paved the way for the nation to join the African Trade Insurance (ATI) after the signing of a treaty with the continental body.

Following the move, ATI CEO George Otieno, said the pan African insurer will set up base in Ethiopia by June this year once the administrative procedures are completed by the Ethiopian Government.

“In general, membership to ATI will help Ethiopia to attract much-needed trade and investments. In 2015, we supported $1.7 billion worth of insured trade and investments within our member countries and since inception in 2001, we’ve supported $21.5 billion worth of investments and trade. We are very proud of this achievement,” Mr Otieno said in interview.

Smart Company had by the time of going to press not received a clarification from the Ethiopian Treasury through its Ethiopian Embassy in Nairobi on whether the amended provisions apply to foreign participation of multilateral development finance institutions such as Tunis-based PTA Bank, Cairo-based Afrexim Bank and now Nairobi-based ATI only, or whether it represents a total opening for all foreign financial institutions including commercial banks.

But experts nevertheless termed the move a good signal for Kenyan banks who have been eyeing a piece of the Ethiopian market.

“I think this is one of the smoke signals. If Ethiopia is serious about joining the World Trade Organisation then that will mark the ‘Open Sesame’ moment,” said Nairobi-based analyst and Rich Management CEO Aly Khan Satchu.

Several Kenyan financial institutions have over the years expressed their desire to join the Ethiopian market. They include Cooperative Bank of Kenya, KCB Group and Standard Bank Group which trades under the CFC Stanbic brand in Kenya.

Joint venture partnerships

In October last year KCB and Standard Bank, said they had received licences to open representative offices in Ethiopia.

And in March this year, Cooperative Bank of Kenya CEO Gideon Muriuki said the lender would pursue its regional expansion plan in Ethiopia modelled on the joint venture partnership for its South Sudan subsidiary in which Government of South Sudan has a stake in the lender.

The lender has in the past said it is eyeing presence in Rwanda, Uganda, Tanzania and Ethiopia in the next five years.
In 2013 Ethiopia locked out Kenyan banks in an agreement that allowed local companies operating in other sectors to make forays into the country.

The deal, a special status agreement (SSA), which Kenya penned with Ethiopia, gave Kenyan companies access to the country. The agreement was however restricted to trade, investment, infrastructure and food security alone.

Ethiopia restricts foreign investors from venturing into the telecommunication, banking, media, retailing, insurance, and electricity sectors, but allows foreign participation on a selective basis.

However, Ethiopia has been keen to deepen regional economic engagement and this became clearer in December last year when the country made its formal entry into the Northern Corridor Integration Projects initiative which has the potential to reshape the regional economy and politics, creating a new trading bloc.

Ethiopia applied to join Kenya, Rwanda, South Sudan and Uganda in the initiative.

Experts say Ethiopia represents a major opportunity for Kenyan banks keen on regional expansion primarily due to several factors. For starters the country has a large addressable market, with a 96 million population.

Despite the majority of residents being low income, ongoing economic transformation of the country largely driven by State-led investment in infrastructure and industrialisation has spread the benefits of economic growth to the majority of the population, making them more bankable.

Ethiopia is also among the few countries with sustained economic growth.

According to the World Bank GDP growth in the last decade shot up from $10.13 billion in 2004 to $55.61 in 2014, and is projected to be sustained in the 7 per cent to 10 per cent range in the next five years.

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