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News: National Bank of Ethiopia greenlights offshore accounts for strategic foreign direct investments

The headquarters of the National Bank of Ethiopia (Photo: Capital Finance International)

Addis Abeba – The National Bank of Ethiopia (NBE) has approved strategic foreign direct investment initiatives to establish offshore accounts. This enables projects to conveniently deposit their proceeds sourced from equity and loan financing. The central bank aims to attract strategic investors across various sectors that can provide much-needed public goods and create new streams of foreign currency flows into Ethiopia.

Under the new law, strategic foreign direct investors can now open offshore accounts to service their external debts, pay for foreign insurance and warranty claims, meet their financial obligations to foreign contractors, cover their foreign capital and investment expenses, as well as maintenance and operation expenses.

Signed by Mamo Mihretu, the governor of the NBE, the directive grants certain privileges to power generation and infrastructure projects under public-private partnerships, as well as large mining projects with substantial export earning potential. These projects will receive preferential treatment in three areas: the opening of offshore accounts, currency convertibility guarantees, and enhanced debt-to-equity ratios.

According to the amended rule, the debt-to-equity ratio for strategic FDI projects has been increased from 60:40 to 80:20. This change allows these investments to secure a significant amount of debt capital compared to their equity investments. Moreover, the foreign currency convertibility guarantee grants strategic investment projects a faster pathway to currency convertibility and offers them a guarantee that surpasses all other foreign currency claims, except for sovereign debt claims.

However, the foreign currency convertibility guarantee is only accessible once the FDI strategic investor has exhausted all avenues for purchasing foreign currency from commercial banks. This requires the investor to acquire a letter from commercial banks confirming the unavailability of foreign currency and persuade the NBE of the currency scarcity within these banks.

Ethiopia has been grappling with a persistent shortage of foreign exchange, particularly in recent years. This scarcity has become a pressing concern for importers across different sectors. Industries such as manufacturing, agriculture, and construction have faced significant hardships as a result. Even those involved in importing essential items like drugs and medical equipment have not been exempt from the adverse effects of the forex crisis. AS

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