RESERVATION OF ETHIOPIA’S BANKING SECTOR TO LOCAL ACTORS: ASSESSING ITS IMPLICATIONS ON THE FOREIGN CURRENCY FLOW OF THE COUNTRY

Abstract

This study is conducted to analyze the implications of Ethiopia’s policy of reserving its banking sector to local actors on the foreign currency flow of the country. An exploratory study was employed so as to achieve the research objectives. The target population includes foreign bank representative offices, branch managers and economists from National Bank of Ethiopia, Ethiopian Economics Association, National Planning Commission, Ministry of Finance and Economic Cooperation and the World Bank. To select sample from the population, purposive sampling technique was used. In order to get relevant data from the target population qualitative approach was used. As a result, semi structured interview was used to gather data from the sample subjects. Nine individuals from six institutions were interviewed. The data collected from the respondents was then put into different categories based on similarity and analysis was made. The findings of the study generally indicated that liberalizing Ethiopia’s banking sector would facilitate trade, allow more FDI to flow into the country, enhance the efficiency and competitiveness of Ethiopia’s exports. The study shows how liberalization could lead to outflows of foreign currency and damage the economy. The study also shows that the importance of the country’s government regulatory and supervision capacity and the country’s overall political climate. Finally, the study forwarded some possible recommendations in order to improve the country’s foreign currency shortage by building a strong export sector and regulatory capacity as well as strengthening the local banks by placing policies that are friendly to the sector.