The National Bank of Ethiopia (NBE) has taken a significant step to boost foreign direct investment (FDI) by permitting the establishment of offshore accounts. This new directive aims to facilitate easier fund deposits from both equity and loan financing for approved projects and attract foreign currency into the Ethiopian economy.
Scope of the New Directive
Under the newly approved law, strategic foreign direct investors have the ability to open offshore accounts. These accounts can be used to service external debts, pay for foreign insurance and warranty claims, meet financial obligations to foreign contractors, and cover various other foreign capital and operational expenses.
Preferential Treatment for Specific Sectors
Governor Mamo Mihretu of the NBE signed the directive which provides privileges to certain types of projects, notably those in power generation, infrastructure under public-private partnerships, and large mining projects with significant export potential. These initiatives will receive preferential treatment in three distinct areas:
- Permission to open offshore accounts.
- Guarantees for currency convertibility.
- Adjusted debt-to-equity ratios.
Changes in Debt-to-Equity Ratio
In a significant change, the new rule adjusts the debt-to-equity ratio for strategic FDI projects from the previous 60:40 to an increased 80:20. This allows such projects to secure a considerable proportion of debt capital in comparison to their equity investments.
Foreign Currency Convertibility
The directive also introduces a fast-track process for currency convertibility for these strategic investments. However, the foreign currency convertibility guarantee is conditional and only comes into play when an investor has explored all options for acquiring foreign currency from commercial banks.
Economic Background
Ethiopia has been facing persistent foreign exchange shortages, which have adversely impacted multiple sectors including manufacturing, agriculture, and construction. Even critical sectors like healthcare have not been spared from the negative ramifications of this foreign currency crisis. The new directive aims to alleviate some of these issues by encouraging foreign investment and enabling more efficient currency flows.
This move comes as part of Ethiopia's broader strategy to attract investment across various sectors to address the shortage of public goods and create new streams of foreign currency into the country.
