Regulating Domestic Financing To Foreign Investment In Ethiopia

Ethiopia as a developing nation faces a negative balance of payment, domestic savings are insufficient to meet domestic investment demand, there is a consecutive budget deficit. The very idea of attracting FDI to Ethiopia is to utilize the capital available from foreign investors. However, regulating domestic sources of financing to foreign investment has given a little place. Thus, there is a gap in the regulation of the consumption of domestic capital made by foreign investors.rnIn the recent capital market proclamation, there is no equity reservation made for the domestic investor, which leads to the dominance of the economy by foreign investors. Empirically, from a capital perspective, foreign investors dominate the borrowing from DBE. In addition, the bank is also unable to recoup its loan from certain foreign investors since it does not strictly follow banking principles and rules while making loans.rnThe MCR provided under-investment proclamation seems it is not determined on the economic analysis since it is the same for almost all sectors. Because of the absence of a comprehensive national price index, under-pricing and over-pricing of import and export are not well regulated. As a result, illicit transfers of funds may occur. Moreover, even if leasing capital goods is intended to fill capital gaps, there no law that forbids foreign investors from being acquiring capital goods from a capital good financing company.rnThe problem is more aggravated for a reason that repatriation of capital and its proceeds is fully liberalized and consequently foreign investor may repatriate their capital including capital gained from the “domestic sources of financing”.rnAfter needful analysis, the researcher concludes that regulating the domestic financing of foreign investors in Ethiopia is disregarded while focuses mainly on attracting foreign investment.rnTherefore, the researcher mainly recommends that the amendments of some investment laws, capital market proclamation, the empowerment, and independence of DBE, the establishment of some departments/teams in NBE and EIC. The prohibitions of importation of used machinery with some exceptions.

Get Full Work

Report copyright infringement or plagiarism