Financial Sector Liberalization for Foreign Nationals of Ethiopian Origin in Ethiopia and Its Extra-territorial Implications and Challenges
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Date
2022-09
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Addis Ababa University
Abstract
Until late 2019, only Ethiopian Nationals and Organizations entirely owned by Ethiopian Nationals
and registered under Ethiopian law were allowed to invest in the financial sector in Ethiopia. The
Ethiopian government has implemented a policy amendment that lifts the legal bar on FNEO
investing in the financial industry. In this regard, FNEOs are permitted to buy shares in existing
financial institutions or to form new financial institutions in Ethiopia. However, the liberalization
came with a stipulation that prevents FNEO investors from exercising their economic rights over
their investments, i.e. they are not allowed to repatriate any asset or economic advantage derived
from their investment and also every payment due to FNEO in relation to their investment shall be
paid in local currency (ETB). Transfer of funds in respect of investments is a major concern in
investment treaties, both multilateral and bilateral, and one of the standards of protection for foreign
investment. Ethiopia has signed BITs that establish a standard of protection for foreign investment
recognized by IIAs and multilateral investment treaties, including funds transfer. The objective of
the study is to assess the financial sector liberalization for FNEOs in Ethiopia and its extra territorial implications and challenges. The researcher gathered evidence from primary and
secondary sources to substantiate the conclusion. Relevant experts of the institutions bestowed with
the power and responsibility of regulating the financial sector as well as foreign investment, and also
a principal advisor and representative of the government regarding law namely the NBE, EIC, and
Ministry of Justice respectively have been interviewed. Relevant investment agreements, investment
tribunals’ decisions, and laws dealing with foreign investment have been discussed. Preparatory
documents of the financial sector amendment laws have been reviewed. This study argues that given
the BITs signed by Ethiopia, the stance of the financial sector, as well as investment laws, appear to
conflict with the BITs signed by Ethiopia in terms of FNEO investment protection in Ethiopia is
concerned. It is recognized that the host state's action against FNEO deprives the investor of the use
and advantages of their investment, even while the investor retains normal ownership of the
investment's corresponding rights, the actions are comparable to creeping or indirect compensable
expropriation. On the one hand, this thesis accepts that financial sector deregulation for FNEOs will
promote FDI and hence boost the country's economy, as well as strengthen FNEOs' ties to their
place of origin, and placing restriction on FNEO investment on the other hand. However, because
FNEOs are foreign nationals, the restriction must be consistent with the country's international
obligations emanating from BITs signed by Ethiopia. Finally, this thesis advises that financial sector
laws be amended in a fashion that complies with treaty obligations as well as the jurisprudence of
international investment tribunals, while liberalizing the industry and limiting FNEOs' investment
rights.
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Keywords
Financial sector, Foreign nationals of Ethiopian origin, Liberalization, Repatriation