Merger is Inevitable!

Oct 15 , 2022
By Asseged G. Medhin

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The Ethiopian financial sector is a veteran in the continent but laggards while other African countries advance. The century-old industry could no longer serve its community without fail. The current price of goods, determined by the interaction of demand and supply, looks as if economics has landed on the financial landscape for the first time. We do not have market-driven or other standards to measure the financial sector. Branding of banks, insurance and micro finances is done with affiliation as opposed to marketing.

Service is not innovative or knowledge-based. Both banks and insurance systems from the last five decades are still around. The customer payment order (CPO) and other services still use typing machine keys. It is evident in how these bankers and insurers should exist in the ongoing change in the sector that is streaming aggressively.

The government of Ethiopia closed the sector from foreign investors, giving time to local institutions to build capital, human resource and technology, referred to as Fintechization, Financial Technology.

The question remains, how long is it going to stay closed?

About 200 financial suppliers are in Ethiopia, consisting of bankers, microfinance institutions, insurers and reinsuring firms. However, their combined capital is far lower than a banker from Europe and some African countries. Why we are not growing exponentially and creating competitive institutions is a very crucial question for investors interested in Ethiopia.

Experts in the sector challenged by the new playground require world-class service, knowledge, skill, attitude and experience.

I strongly claim that the Ethiopian financial sector reflects the political ideology in charge, different ideologies in the same spectrum. The narration of this premise is that the two were woven together and served as a tool for every system of government.

Now things have changed. External forces are vigorously shaking the close-door policy sealed with barbed wire for many years. Can we survive? Or is Darwin's fecundity creeping unto us? Whatever the outcome, the sector's clock is ticking.

The Ethiopian government has informed the financial sector to be open to foreign investors for a maximum of two years, including 2022.

Whatever entry modality and strategy they adopt, it will be challenging to cope with the foreign knowledge, technology, attitude and capital.

The management's appetite for the risk has changed since the entrant transacted in a market where competition and dynamics prevail.

Adequate capital is a mandatory factor even through the merger and acquisition of a foreign banker or insurer.

A few bankers may not be able to merge as a local giant financial institution may seek a foreign banker as a joint venture through the 30pc to 70pc arrangement. Adequate capital and risk management require different models and techniques foreign to the locals.

We shall take it as a blessing in disguise, a new opportunity for capital and stock market developments. Additional shares float to increase bankers' and insurers' capital as trading occurs following the decision to open up. Mergers and acquisitions are inevitable facts in the Ethiopian financial sector.

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PUBLISHED ON Oct 15,2022 [ VOL 23 , NO 1172]

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