In an audacious bid to attract investment to a country experiencing diminishing forex inflows, the National Bank of Ethiopia (NBE) allows investors to bank with a financial institution different from their incorporated jurisdiction with a directive approved last week.

The opening and operations of offshore accounts prioritise infrastructure development, power generation and mining projects indicated as "strategic foreign direct investments", which promise substantial export earnings.

Regulators at the Central Bank may also grant permission for other sectors in consideration of their job creation, import substitution and forex generation possibilities, according to the new directive which does not explicitly state a minimum capital threshold.

Vice Governor Fikadu Digafe explains that the eligibility of projects will be viewed in terms of their potential contribution to key economic variables before being granted offshore privileges. He jovially expressed most projects that request offshore banking modalities are capital and technology-intensive, taking place in extended durations.

"Any investor with a couple of million won't make the cut," he told Fortune.

The projects will be required to provide quarterly financial reports of the inflows and outflows of the account while providing annual projections of their potential forex earnings and expenses.

"We approve the banks in which the accounts will be open," the Vice Governor noted to Fortune in reference to efforts to facilitate their regulatory function. The banks in which the offshore accounts open will also have to be grade-one, entailing strong financial soundness, according to Fikadu.

External debt servicing costs, capital expenses, insurance and warranty payments are eligible for payment from offshore accounts

Meanwhile, the debt-to-equity ratio which indicates the proportion of liabilities to total shareholder's equity in order to measure the reliance on debt of a company to fund its projects raised to 80:20.

The directive signed off by Governor Mamo Mehretu last week sets in a foreign currency convertibility guarantee that entails dividend repatriations and loan repayment assurances after the project owner exhausts all possible foreign currency purchases from local commercial banks.

While the convertibility clause is limited to Public-Private-Partnership Projects in energy and mining deemed as "strategic", they will be preceded only by national debt servicing obligations in their forex allotment hierarchy at the prevailing market exchange rate.

Despite a letter by Prime Minister Abiy Ahmed (PhD) granting oil and gas companies the right to operate offshore accounts four years ago in response to pleas from now-defunct Chinese gas mining company Poly-GCL Ethiopia historically has restricted offshore banking practices for investors. Several reasons, such as money laundering, capital flight and tax evasion, have been cited by prior administrations for not allowing offshore accounts.

The restriction has been touted by academics and investors alike as a critical hindrance to the inflow of foreign investment into the country for many years.

"Legal guarantees go a long way in attracting private capital," said Tadesse Lencho (PhD), founder and managing partner of TbeST Law LLP. He indicated that international financers are usually put off from foregoing funds in developing countries without the ability to control their money.

Tadesse explained that the new set of stipulations will create novel ways of enforcement for institutional investors to keep a close eye on their money. He said offshore accounts allow creditors to freeze funds in the case of delayed repayments.

"Large-scale investments heavily rely on credit," Tadesse told Fortune in reference to mining and power generation projects.

While he lauded the reforms pushed by the central bank, he recognises that implementation and supervision will be a tall task without the cooperation of other countries to prevent capital flight and tax evasion.

Tadesse referred to tax treaties between Ethiopia and the Netherlands that seek to harmonise tax collection as an example of possible 'administrative assistance agreements' to create transnational regulatory capacities.