[Op-Ed] On the road to a digital economy, Ethiopia is ramping up activity

Ethiopia’s financial sector, particularly its digital economy, is underdeveloped; it is one of the few remaining sectors of the country’s economy historically closed to foreign investment and ownership.

Key elements of the ecosystem required for citizens to transact digitally and/or online have been missing, which has materially slowed the development of a digital economy.

However, there is light at the end of the tunnel. More recently, the Ethiopian government has prioritized development of its digital economy. Key forward steps were improving the regulatory environment, and the legal frameworks key to a digital economy.

Several new laws and operational directives have been issued including: an updated National Payment Systems Proclamation allowing non-bank participants in the digital financial services sector; the Payment Instrument Issuer and Use of Agents Directive - which governs mobile money; the Payment System Operator Directive – which governs online payment gateways, POS, Switch, ATMs; and Electronic Transaction Proclamation and Regulation - governing ecommerce.

From a policy standpoint, the Ethiopian government has introduced coordinated measures to bring more financial flows into the formal system and promote digital payment mechanism use. Previous bank notes have been demonetized and there are restrictions on cash usage.

The latter includes no more than $39,500 to be held in cash, limits on personal ($1315) and business ($1973) daily cash withdrawals, high value asset transactions must be via digital means, and tax payments must be digital.

Additionally, EthSwitch POS integration is now live, and the telecoms sector is increasingly liberalized. Two new licences have been awarded to foreign operators, and a 40% stake in the incumbent – Ethio Telecom - will be sold to foreign operators early in [2022].

In the same way that decent roads are required to open up new sectors of the economy, spurring a truly digital economy requires the relevant infrastructure for a consistent, reliable and smooth journey.

An unwritten rule is that to change consumer behaviour, an experience several factors greater than the status quo must be offered. Similarly, whilst many know and have experienced the benefits of a digital financial experience, unless Ethiopia can offer its citizens a means of transacting online that is consistent, reliable and significantly better than today’s cash and in-person transactions, its digital economy will not flourish.

The enabling regulatory environment and other key financial infrastructures continue to be built out with urgency by the Government and its regulatory institutions. Importantly, the private sector has been welcomed as an active participant in building the digital economy including, more recently, non-bank financial institutions.

This competition, innovation and collaboration will help develop the smooth roads required for digital transactions at scale.

On Ethiopia’s road to a digital economy, the tarmac is being rapidly laid – which is good for the country and all its stakeholders.