Ethiopia's central bank governor has disputed the reasons given by the country's only foreign-owned financial services company for its decision to wind down local operations.
Ethio Lease, Ethiopia's only foreign-owned financial services company, recently announced plans to voluntarily liquidate its operations in the country.
Ethio Lease commenced operations in 2019 after obtaining the first-ever non-domestic financial services license from the National Bank of Ethiopia (NBE). It specialized in lease financing and helped finance equipment for key sectors such as healthcare, agriculture and construction.
However, in its closure announcement, Ethio Lease blamed changes to Ethiopia's financial rules requiring lease agreements be denominated in birr rather than foreign currency, and prohibiting foreign firms from borrowing locally. It said this made its business model unviable given Ethiopia's non-convertible currency.
Ethio Lease cited directives issued in 2021 requiring all lease agreements to have fixed payments denominated in Ethiopian Birr, as opposed to being set in foreign currency and payable in Birr against the exchange rate at the time of settlement.
A separate directive prohibited foreign-owned leasing companies from borrowing Ethiopian Birr, the company said. Ethio Lease added this combination made it impossible to operate as they could no longer reprice for currency fluctuations given the non-convertible Birr and lack of hedging options.
However, in a strongly-worded rebuttal, National Bank of Ethiopia (NBE) Governor Mamo Mihretu, in an interview with The Banker, rejected Ethio Lease's assertion that changes to financial regulations made its business model unviable
Governor Mamo rejected Ethio Lease's reasons, saying the company was fully aware of borrowing policies when it invested.
“The company was well aware of this when making their investment decision, as also evidenced by communication on their part prior to their licensing. Therefore, the claims are baseless and unfounded. They are simply shifting blames,” Mamo said.
Mamo claimed the NBE supported Ethio Lease through discussions and argued its challenges stemmed from internal management flaws rather than regulations. While wanting foreign firms to succeed, the governor maintained companies decide whether to operate in Ethiopia.
The public disagreement indicates lingering issues over the regulatory landscape for potential foreign investors in Ethiopia's financial sector, despite emerging opportunities.
