Ethiopia’s central bank granted a financial services license to a foreign-owned company for the first time on Thursday. The move is part of Prime Minister Abiy Ahmed’s plans to reform and open up Ethiopia’s economy.
The company, Ethio Lease, will lease equipment such as MRI scanners, tractors and drilling rigs to companies that can’t import such equipment themselves due to foreign exchange shortages.
Ethio Lease is owned by U.S.-based equipment leasing company, Africa Asset Finance Company (AAFC).
Ethio Lease offers long-term leases known as capital leases, which provide companies and individuals with lease contracts that cover the significant portion of the economic life of the purchased equipment. Depending on the equipment, Ethio Lease will ensure that companies which will lease equipment adhere to proper operations, maintenance, health and safety and adequate storage requirements throughout the lease period.
Talking about the significance of the launch of Ethio Lease, board chairman of the Ethio Lease Girma Wake said “leasing high equipment could have potentially transformative impact on Ethiopia because it allows companies to free up their liquidity and generate revenue without having to heavily invest in equipment. A leasing agreement would also allow companies to pay for equipment as it generates revenues for them.
Ethio Lease will acquire the equipment in foreign currency and provide companies the equipment they need for their business operations using local currency.
Chairman and CEO, Frans Van Schaik says the company will import $600 million of equipment annually.
“There is a liquidity shortage and a lot of businesses are craving equipment that they just can’t get,” said Van Schaik.
“Almost every factory in Ethiopia can tell you about how an equipment shortage or other issue is delaying construction or operations.”
“The bureaucracy in Ethiopia is overwhelming,” he said. “If you want to succeed in Ethiopia, you need to be patient and persistent.”
But Van Schaik also said Ethiopia is poised for growth as the government takes significant strides to create jobs and improve the economy.
“By providing leasing solutions to growing businesses, we believe our capital will help stimulate economic activity while generating attractive risk-adjusted returns for our lenders and investors.”