Stephen Timewell reports from Addis Ababa on how the privatised institutions are snatching market share from the state banks.
The financial sector in Ethiopia is slowly changing as the six private banks aggressively grab market share from the state-owned monolith, Commercial Bank of Ethiopia (CBE). But challenges abound and serious concerns exist – not only about the drought and the state of the economy but also about the overall pace of reform, entrenched attitudes from Ethiopia’s socialist past and the ability to achieve sustainable development.
In a brave move Prime Minister Meles Zenawi at the recent African Development Bank meeting in Addis Ababa said candidly: “Ethiopia is going nowhere because, despite our best efforts to liberalise our agricultural markets, they are not working properly.”
However, his government has been less candid about the shadow hanging over the country’s biggest bank, the CBE. In January last year 42 senior bankers from the CBE were arrested and jailed by the Federal Ethics and Anti-Corruption Commission (The Banker July 2002, p129). The arrests remain a mystery and while bankers and officials confirm the 42 bankers are still in jail neither the bank nor the government will comment on the issue.
Small banks strengthened
Meanwhile, the smaller private banks are seizing on the problems at the CBE and strengthening their positions. Established in 1995 after effectively 20 years of centralised, Soviet-style banking, the new banks have slowly developed their networks and gained market share. Leikun Berhanu, general manager of Awash International Bank and president of the Ethiopian Bankers Association, explains that the six banks now have a market share of close to 20%. They are beginning to reach out into rural areas through expanding branch networks and also support for a growing web of micro financing organisations and a newly created system of cooperative banks. As at June 2002, 21 micro financing institutions with a paid up capital of 38m birr ($4.6m) had mobilised 255m birr of deposits.
Market share predictions
Lulseged Teferi, president of Dashen Bank, is also bullish about the prospects for the private banks. He told The Banker that the private banks are gaining more customers through better service and could expect to reach 30% market share (of deposits) by the end of next year, and up to 40% in two years’ time.
Awash and Dashen are the leading private banks, closely followed by Bank of Abyssinia and three smaller banks – Wogagen Bank, NIB Bank and United Bank. These banks now have 105 branches, with Dashen leading the field with 30 branches, followed by Awash with 26 and Abyssinia with 15. Dashen’s Mr Teferi is particularly proud of his bank’s recent growth: “We have doubled the number of our customers to 170,000 in the last two years and we now account for around 30% of the private banking market.”
Around 50% of the private bank branches are in Addis Ababa. This contrasts with the CBE’s 171 branches, of which only 20% are in Addis, the rest being in the poorer rural areas of this vast country of 66m people. The country also has two other state-owned banks, the relatively large Development Bank of Ethiopia and the Construction & Business Bank, which has been due to be privatised for some time but no timetable is available.
Progress limits
While bankers are hopeful, they are also constrained by the country’s socialist past. Land is not privatised in Ethiopia – which bankers believe discourages farmers and agricultural output. There is no stock exchange (and no imminent plans for one) and foreign banks are not permitted by law. Although bankers suggest that there is “no fear of foreign banks and entry is a matter of time” the governor of the National Bank of Ethiopia, Teklewold Atnafu, recently stressed that foreigners are not allowed to invest in the domestic financial sector, clearly wanting to maintain Ethiopia’s financial isolation.
Given that the country remains desperately poor – with GDP per capita of $100 – and that the government of Mr Zenawi bluntly acknowledges its lack of strategy, perhaps more open policies are needed.
Ethiopia is not without resources and some new ventures, such as the export of flowers, have proved successful. But many structures, including the banking sector, seem shackled to the past and until attitudes change the path to attracting foreign investment and maintaining steady growth seem exceedingly difficult.
