Liberalization of the Banking Sector in View of Ethiopia’s Accession to the World Trade Organization

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Date

2015-10

Authors

Daba, Mulisa

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Addis Ababa University

Abstract

Similar to the two complaining sides of banking liberalization in the world, there are arguments for and/ or against liberalization of the Ethiopian baking sector to the outside world. Proponents argue that opening the Ethiopian banking sector to foreigners has the benefits of efficiency, increased employment opportunity ,improve NBE Regulatory and supervision capacity through regulatory spillover, foreign banks may brought new skill and quality services and new capacitate of the banking sector technological know-how. On the other hand, opponents fear liberalization for its risks of financial instability, weakening the domestic banking institutions and the possibility of leaving out the poorest section of the society. Thus, this paper attempts to analyzes the Current Ethiopia’s banking sector policy, regulation and market situation in order to know the Potential Effects of Ethiopia’s Accession to the WTO on its Banking Sector Liberalization and recommend whether Ethiopia should liberalize the banking sector in view of its accession to the WTO or not. The methodology followed in undertaking the study involves review of both primary and secondary data and information. The review of the WTO accession rule, acceding countries’ WTO accession and banking sector Liberalization experiences and interview of key informants has been involved for evidence and benchmarking. The finding of the study shows that, the WTO accession process and Banking sector liberalization commitment requires well informed and understanding of (the WTO, the WTO system and complexity of the accession process), capacity building and technical support of international community as well as adoption of best accession model practice. On behave of Ethiopia, along with different studies, interviews, and reports of Ethiopia banking sector shows that even though Ethiopia’s gradual liberalization policy and a lot of improvements over time in banking sectors are encouraging; however, compared to international giant banking sectors, the sector is generally still found at infant, relatively undeveloped, heavy dominant role of state-owned NBE’s regulation, and a non-competitive market environment. Based on these, to benefit from the WTO accession and Banking sector liberalization commitment, and to save from the risk, the researcher recommends the country three things: First, before the country start bilateral negotiation as preparation to the WTO, the country should invest on capacity building relating to banking sectors (human, institutional and financial) by continuous further demanding capacity building and technical support of international community. Second, the country should invest on strengthen country’s banking sector policy, relax heavy dominant role of NBE’s regulation and make Ethiopia baking sector market situation environment competitive. Lastly, during bilateral accession negotiation in offering the four modes of trade supply in Ethiopian banking sector, the country should negotiate to commit in offering full liberalization of mode 2 for its risk-free and offering the temporary movement of natural persons in mode 4 for its intra-corporate knowledge transfer in banking sector. However, the country should negotiate on maintaining capital controls and cautious approach in opening mode 1, and the country should negotiate to stay at the current level of gradually liberalization commitment until it builds domestic capacity of Ethiopian banking sector in Mode 3. Key Words: WTO, Accession, Liberalization of the Banking Sector, Ethiopia

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Keywords

WTO, Accession, Liberalization of the Banking Sector, Addressing the Moyale Conflicts in Southern Ethiopia

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