The government of Ethiopia has launched a study assisted by World Bank experts with the aim of liberalising the country's financial system.

One of the main challenges Ethiopia has faced in recent years has been a chronic lack of foreign exchange that has made obtaining import letters of credit (L/Cs) extremely difficult.

Foreign bank participation

The study aims to address chronic problems in Ethiopia's financial sector by liberalising the market.

According to governor of the National Bank of Ethiopia (NBE), Yinager Desse, a main aim of the liberalisation strategy is to open up the country's financial sector to foreign banks.

The governor is concerned that although the financial sector has been keeping up with demand for currency, its foreign exchange reserve provides just 2.6 months of basic import cover, which Yinager says is too short.

AfCFTA membership

He maintains that Ethiopia signalled its readiness to reform its financial sector by opening its doors for foreign banks when the Ethiopian parliament approved the African Continental Free Trade Area (AfCFTA) agreement.

Banks already operating in Africa are expected to be able to operate throughout AfCFTA member states once the free trade area is established.

Longstanding problems

Ethiopian importers have had a very tough time obtaining L/Cs in recent years.

In 2016 it emerged that Ethiopia's shortage of foreign exchange had become so critical that opening an L/C could take up to one year, or in some cases longer (DC World News, 12 February 2016).

In the following year Ethiopian business leaders criticised their government for failing to address the longstanding issue of L/C shortages (DC World News, 12 February 2017) and NBE was forced to provide US$1 billion to prop up state-owned Commercial Bank of Ethiopia (DC World News, 5 May 2017).

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.