Foreign-Owned Financial Company Ends Operations in Ethiopia

The New York-based African Asset Finance Company (AAFC), a leasing firm targeting emerging markets, said it had directed its Ethiopian unit "to begin the process of voluntary liquidation."

"As a result of the changes to the regulatory framework, the viability of Ethio Lease as a foreign-owned leasing company became structurally impaired," it said in a statement dated November 15.

The company was the first and only foreign group to obtain a financial licence from the National Bank of Ethiopia in 2019, as part of reforms to open the country's tightly-controlled economy.

Prime Minister Abi Ahmed announced the ambitious economic reform package after coming to power in 2018.

But the economy has deteriorated sharply in recent years and the will to continue the reforms has largely stalled.

According to Ethio Lease, chaired by former Ethiopian Airlines chief executive Girma Wake, the troubles began in 2021 when the central bank changed the regulatory framework.

Under the amendment, all lease agreements must have fixed payments denominated in Ethiopian birr -- whose value has slumped -- unlike earlier when prices were fixed in foreign currency, Ethio Lease said.

"The combination of this amendment and another directive which prohibits foreign-owned leasing companies from borrowing Ethiopian Birr has made it impossible for any foreign-owned leasing company to operate in the country," said AAFC.

"They can no longer reprice for currency fluctuations and hence risk being unable to repay their own financing."

A non-convertible currency whose exchange rate is regulated by the NBE, the birr has lost half its official value since 2019, trading at 56 to the dollar and 110 on the parallel market.

According to AAFC, Ethio Lease granted more than $25 million in leases for medical equipment, generators and public works and agricultural machinery in 2020.

But its capital has now slid to 25 percent of its original value, the legal threshold under which Ethiopian law requires recapitalisation or liquidation, said AAFC.

"This is a huge loss for Ethiopia," said Ethio Lease's Girma Wake.

AAFC chief executive Frans Van Schaik said they "regret the position the Ethiopian government is taking in this matter."