US advises Ethiopia to liberalize telecom, finance sectors

The United States government has advised Ethiopia to liberalize its telecommunications, banking and insurance sectors to attract broad foreign investment.

The advice was presented to Ethiopia by a U.S. delegation that held discussion with Ethiopian government officials over the weekend here in Addis Ababa.

In a press statement the U.S. Embassy sent to www.newbusinessethiopia.com, the U.S. representatives noted that government reluctance to liberalize Ethiopia’s telecommunications, insurance and banking sectors prevents the Ethiopian economy from reaching its full potential and attracting broad investment.

“Jordan Winkler, Financial Economist from State Department’s Bureau of Economic, Energy, and Business Affairs outlined U.S. plans to improve the ways in which the U.S. and Ethiopia could cooperate on economic reform and trade issues.”

It is recalled that in March last year the U.S. representative to the World Trade Organization (WTO) noted that Ethiopia have to liberalize these key sectors. Meanwhile, Ethiopia has been resisting the pressure by indicating that liberalizing these sectors won’t benefit the economy and the people of Ethiopia.

One of the assumptions behind government’s resistance to liberalize these “untouchable service sectors” is that if liberalized the service providers’ focus will be competing in the already established urban market in order to escape the high infrastructure investment cost these services require to reach rural areas.

As a result, rural areas with about 80 percent of the total population will remain under-banked and without access to telecommunication services.

Meanwhile, ever since Ethiopian government applied for WTO membership in 2003, the pressure on the government has been growing from various directions.

“Primarily we will join the WTO not to make others happy, but to make our economy work,” Girma Birru, Trade and Industry Minister of Ethiopia said last year responding to media on the issue.

“…to the extent it helps our economy we will liberalize things, but if it’s not going to assist our goals in trade and development we will not liberalize. Why do we have to?” Girma said.

With regards to ratio of bank coverage to the population size, Ethiopia is one of the most under-banked countries in Sub-Saharan Africa. Currently 617 bank branches are serving the 79 million population of the country.
Currently one branch bank in Ethiopia serves around 130,000 people. This figure drops to 14,000 in Tanzania, 31,000 in Kenya and 70,000 in Uganda.

When it comes to telephone penetration, Ethiopia still remains behind neighboring countries. Ethiopia around two percent of the population has a telephone and just about one percent Internet usage, low even by African standards.

On average there are now 60 mobile subscriptions for every 100 people in the world. In developing countries, the figure stands at 48 – more than eight times the level of penetration in 2000.

In Africa, average penetration stands at more than a third of the population, and in North Africa it is almost two-thirds. Gabon, the Seychelles and South Africa now boast almost 100% penetration. Only five African countries – Burundi, Djibouti, Eritrea, Ethiopia and Somalia – still have a penetration of less than 10 per 100 inhabitants.

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