Why Ethiopia could disappoint Equity in its Africa expansion drive

Equity Group (EQTY) is in an expansion mode. The company aims to be in 10 African countries by the end of 2019. From there Equity aims to be in 15 countries by 2026.

Ethiopia is one of the countries Equity has set its sights on in its Africa expansion drive. It opened an office in Ethiopia in June, a first step in launching operations in the country.

However, Ethiopia may not be a big boost to Equity’s African expansion as the company may have expected. Ethiopia is opening up its economy to foreign investors as part of a broad economic reform that has become a signature programme of Prime Minister Abiy Ahmed.

While Ethiopia is keen to attract foreign investors to create more jobs for its youth and generally drive economic growth, there are sectors of the economy it still wants to shield from foreign investors. One of them is financial services sector, which is the space Equity and fellow Kenyan lender Kenya Commercial Bank (KCB) are eyeing in Ethiopia.

An Ethiopian government agency involved in the economic reform programme has proposed that the country preserve the financial services sector for domestic investors. If the Ahmed administration adopts the proposal, then that could result in a limited business space for Equity in Ethiopian market, which would be a blow to the bank’s expansion drive.

Ethiopia is home to more than 100 million consumers, many of who currently lack bank accounts. That made it seem an attractive market for Equity in its bid to grow its customer base from about 14 million currently to 100 million by 2024.

Equity stock rose 0.48% on Friday to close the week at Ksh52.25. The stock has gained 51% this year.