Authored By: Mekdelawit Aklil Getachew
Debre Berhan University
Abstract
For decades, Ethiopia operated in closed financial market that completely forbade foreign corporate from entering its domestic insurance sector. However, as the state accelerates its process for accession of World Trade Organization(WTO), the legal framework requires a transition to comply with the market access principle of the WTO General agreement on trade in service(GATS). The legal authorities amended the proclamation No 746/2012 via proclamation No 1163/2019 to allow diaspora to invest. Finally, they enacted a proclamation No 1360/2025 to allow international corporations to have a commercial presence. This article presents a critical assessment of the transition, focusing on legal friction, capacity gaps of the National Bank of Ethiopia, and technical constraints of the domestic judiciary.
Keywords: GATS,WTO,Commercial courts,Insurance Sector,National Bank of Ethiopia
Introduction
For centuries, Ethiopia closed its financial sector for foreign investors, completely barring foreign nationals and corporate entities from domestic banking and insurance markets. The exclusion of foreign markets was not merely for isolation; It was implemented to prevent capital flight and to protect the domestic capacity.
Historically, all banks and insurance were controlled by the states, as domestic financial institutions were small and lacked the technology to survive the foreign competition. The insurance business proclamation No 746/2012 protects to shield the bank and insurance from capital flight.[1] However, as Ethiopia accelerate for the accession of the World trade organization, this legal proclamation no longer suffice. To align with the market access and align with the world trade organization GATS agreement, the authorities needed to revise their legal rules.[2]
In recent years,there have been a significant changes towards opening the financial sectors for foreign investors. To align with the market access and World trade organization GATS agreement, legal authorities decided to revise the law.This significant change is seen by amending the proclamations that strictly forbade the foreign investors. Consequently, proclamation No 746/2012 amended by the insurance business(Amendment) proclamation No 1163/2019 in 2020.[3]
The amended proclamation gave partial equity access to foreign Diasporas of Ethiopian origin under strict currency-locking and non-repatriation terms, while maintaining an absolute bar against global corporate insurers. This transition served as a turning point, for banking business proclamation No 1360/2025 to formally open the financial sector to international investors.[4]
Ultimately, this article argues that opening the insurance sector is a non-negotiable and prerequisite for WTO membership.[5] The scope of this analysis is confined to the legal and regulatory implications of GATS Mode 3 commercial presence parameters and the forty-nine percent aggregate foreign equity cap on domestic firms. This paper will map the pillar of GATS financial framework in contrast with Ethiopia’s protection amendment and evaluate the legal revisions.
The WTO GATS Framework and Financial Service Realities
The General agreement on trade and service is the first framework governing international trade in services. Under Article I:2 of the GATS, international service delivery is segmented into four distinct modes of supply. In the context of financial and insurance sector, international trade focuses on mode 3 and mode 4, which governs commercial presence and presence of natural persons, respectively.[6] Mode 3 occurs when a foreign entity establishes a physical institution in the domestic market, typically in the forms of branches, joint ventures and subsidiaries. Conversely Mode 4 occurs when a foreign expert or manager physically travels to another country to work temporarily.
The General Agreement on Tariffs and Trade (GATT) Serves as the foundation for the multilateral trading system. Its framework is structured in a comprehensive set of rules engineered exclusively to govern international trade in tangible goods. It is vital to emphasize that the GATT framework contains zero legal authority over financial or insurance markets. Because banking and insurance are intangible economic services rather than physical goods, they slip entirely outside the jurisdictional scope of GATT. It was built to stop countries from discriminating against foreign products.
Instead, GATS Article XVI:2 functions as a legal shield for developing nations in WTO negotiation. According to GATS Article XVI:1, a country joining WTO usually agrees to grant foreign service full market access. However, Article XVI:2 this rule allows country to protect themselves from foreign dominance by restricting their contract on how much share a foreigner can buy or limiting how many foreign licenses are given out each year. These protective measures include restricting the total number of foreign service suppliers, enforcing mandatory joint-venture legal forms, and establishing strict maximum percentage thresholds on foreign equity participation.[7]
The Historical and Current Ethiopian Insurance Regulatory System
The modern banking and insurance sector in Ethiopia was heavily nationalized by the state in 1975. private companies were dismantled and all financial operations were state owned. Even though a free market economic policy returned in 1992 and local private insurance companies re-emerged, the framework remained closed to the outside world.
Authorities introduced a proclamation called the insurance business proclamation No 746/2012; this regulation strictly banned foreign financial sectors and international bank from owning a share and opening a branch in Ethiopia.[8] The government firmly believed that small banks and insurance did not have what it takes to compete with global corporate as they lack the advance software and technology.
Ethiopia was facing severe balance of payment difficulties and shortage of currencies in 2019. the government realized that the massive wealth of the foreign diaspora can help the economy. To protect the domestic system, they specified the diaspora can buy equity only if they paid in an acceptable foreign currency, but they were legally banned from repatriating any dividends or proceeds back out of the country.[9]
However, to finalize the WTO accession commitments, there needs to be a major shift in instruments, which arrived via the banking business proclamation No 1360/2025. this law allows foreigners and international investors to enter, buy stocks and open operations in domestic financial territory for the first time in modern history. This law specifically enacted in order to finalize Ethiopia’s WTO Working Party negotiations.[10]
Even though the state opened the door, they established a 49% aggregate foreign equity gap. This means all foreign investors can’t own more than 49% of Ethiopian financial institution’s stock. That way local Ethiopian shareholders can retain 51% majority control. This regulation become the state’s clear legal answer for international barriers.
Critical Assessment: legal and structural Gaps
The transition framework from closed state-monitored system to open market was a practical challenge. Under the current strategy to meet GATS Guidelines, the government has created a compromise by setting a 49% foreign equity on domestic banks and insurance companies. While this helps locals to be in full control, it creates a series problems for international investors as they want usually demand full operational and managerial control before they invest their capital and advanced technology to a new country. This scare away top tier global insurers and forcing them into a permanent minority role.[11]
Furthermore, a critical structural weakness exists in the administrative and supervisory capacity in National Bank of Ethiopia(NBE). For decades, the NBE functioned as isolated domestic market. The sudden arrival of global and complex cross-border insurance and international banks create an immense shock. The domestic legal framework lacks specialized commercial courts and audit teams to monitor multinational risk and corporate crimes, such as transfer-pricing fraud disguised as reinsurance transfers.[12]
Additionally, the NBE’s common practice of issuing internal regulatory directives written only in technical English creates a transparency gap which contrast with GATS Article III transparency rules,which states all business measures must be public, clear, and predictable within a federal legal system whose primary working language is Amharic.[13]
Finally, a deep systematic gap occurs in readiness and technical competencies of the domestic judiciary. Under GATS Article VI, members states are legally required to maintain independent judicial that provide administrative decisions affecting service suppliers.. In Ethiopian context, the federal courts are overburden, suffer from delays and lack experience in specialization in international trade law and cross-border commercial litigation. This creates unpredictability and results a high risk environment that violates GATS domestic regulation standards, and exposing the state to potential international trade dispute before the WTO.[14]
Conclusion and Recommendation
Ethiopia’s accession to the World Trade Organization represents an unavoidable reality for the modernization of its financial and legal framework. While proclamation No 746/2012 protected the domestic firms from foreign firm shocks by maintaining a closed domestic market. However, a completely closed door is incompatible with the global integration. The two proclamations, No 1163/2019 and 1360/2025 demonstrates that the states can successfully use flexible shield to build GATS framework without surrendering the nations economic sovereignty.
Ethiopia needs to adopt three specific regulatory reforms to protect the domestic financial sector
- Institutional capacity upgrade for the NBE: the state must legally enhance the technical and budget of the national bank of Ethiopia. This can be done by establishing specialized anti fraud and international audit to supervise multinational corporate.[15]
- Creating transparency protocol: to achieve full alignment with GATS Article III transparency principles, the NBE must publish all of its directive in the Federal Negarit Gazette. To replace unpredictable internal rules with clear and predictable legal frameworks the technical rules must be written in both Amharic and English.[16]
- Establish specialized commercial courts: to fulfill the requirement under GATS article VI the state must establish specialized commercial benches on the federal court. This courts must be completely independent and has advanced training in international law and global insurance framework.[17]
Biblography
Table of Legislation
International Treaties
- General Agreement on Trade in Services (adopted 15 April 1994, entered into force 1 January 1995) 1869 UNTS 183 (GATS)
National Legislation (Ethiopia)
- Banking Business Proclamation No 1360/2025, Federal Negarit Gazeta
- Insurance Business (Amendment) Proclamation No 1163/2019, Federal Negarit Gazeta
- Insurance Business Proclamation No 746/2012, Federal Negarit Gazeta
Secondary Sources
Journal Articles
- Gashu S, ‘Ethiopia’s Accession to World Trade Organization and the Implications to its Financial Sector Policies’ (2010) 19(1) Ethiopian Journal of Economics 29
[1] Insurance Business Proclamation No 746/2012, Federal Negarit Gazeta
[2] General Agreement on Trade in Services (adopted 15 April 1994, entered into force 1 January 1995) 1869 UNTS 183 (GATS) art I
[3] Insurance Business (Amendment) Proclamation No 1163/2019, Federal Negarit Gazeta s 2
[4] Banking Business Proclamation No 1360/2025,Federal Negarit Gazeta
[5] Semahagn Gashu, ‘Ethiopia’s Accession to World Trade Organization and the Implications to its Financial Sector Policies’ (2010) 19(1) Ethiopian Journal of Economics 29, 31
[6] GATS (n 2) art I(2)
[7] ibid art XVI(2)
[8] Insurance Business Proclamation No 746/2012 (n 1) s 3
[9] Insurance Business (Amendment) Proclamation No 1163/2019 (n 3) s 10
[10] Banking Business Proclamation No 1360/2025 (n 4)
[11] Gashu (n 5) 32.12 Gashu (n 5) 36.
[12] Gashu (n 5) 36
[13] Gashu (n 5) 51–52; GATS (n 2) art III
[14] Gashu (n 5) 52; GATS (n 2) art VI
[15] Gashu (n 5) 69.16 GATS (n 2) art III.17 GATS (n 2) art VI.
[16] GATS (n 2) art III
[17] GATS (n 2) art VI
