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The only foreign-owned financial services company operating in Ethiopia is pulling out of east Africa’s largest economy because of foreign exchange constraints, in a blow to efforts by Prime Minister Abiy Ahmed to attract investors.
Ethio Lease, a unit of New York-based African Asset Finance Company, is the first and only foreign group to secure a financial services licence to operate in Ethiopia. It is also the first company to lease imported equipment, including farm machinery and medical products, in the country of 120mn people.
“This is a huge loss for Ethiopia,” said Girma Wake, Ethio Lease’s Addis Ababa-based chair.
The company was awarded its licence in 2019 as part of reforms designed to liberalise the economy, many of which were derailed by a brutal civil war in the country’s northern region of Tigray that started two years later.
Ethio Lease procured equipment outside Ethiopia in foreign currency and then leased it to local companies in Ethiopian birr, helping businesses overcome a chronic foreign exchange crunch.
The company said it wrote more than $25mn worth of leases since 2020. It has estimated the potential size of the country’s leasing market at $1bn or more.
Ethio Lease said its troubles began in 2021 when the National Bank of Ethiopia, the central bank, changed the regulatory framework.
From then, all lease agreements had to be in fixed payments denominated in Ethiopian birr, whose official value has halved since the company commenced operations. Before the change, Ethio Lease fixed its prices in foreign currency.
Frans Vanschaik, chief executive of AAFC, said efforts to remedy the situation fell on deaf ears. “We had high hopes that the Ethiopian government would successfully liberalise its financial services sector,” he said.
Ethiopian financial officials said they went to considerable lengths with the company to try and resolve the issue but AAFC was insisting on taking the case to arbitration in The Hague as it seeks compensation.
The pullout comes as Addis Ababa is seeking to lure foreign investors back to the country following the end of the Tigray war. During the conflict foreign donors withdrew billions of dollars in support while the US ended Ethiopia’s tariff-free access to its markets, worsening Ethiopia’s crippling foreign exchange shortage.
To raise cash, the government envisages a sell-off of state assets, including a stake in state telecoms group Ethio Telecom. Addis Ababa raised $850mn in 2021 through the sale of a licence to a consortium led by Kenya’s Safaricom, which is part-owned by the UK’s Vodafone.
Ethiopia’s finance minister Ahmed Shide said this year that the liberalisation of the foreign exchange system “will be addressed” as foreign companies operating in the country are struggling to repatriate profits. He also vowed “to open the banking sector” to foreign players.
