2 December 2012

Ethiopia: Too Long to Be True


Business men and women clamour at the bulletin board at the Ministry of Trade, (MoT) on Marshal Tito street to read about the required documents in order to renew business licenses and register before the deadline passes.

A round of applause means anything but approval at the Ministry of Trade (MoT), during the licensing and registration period that had started in July 8, 2012.

The businessmen and women sitting inside the first floor, facing an interminable wait to renew their business licenses and reregister their businesses, are not in the mood to appreciate anybody. They, instead, complain about the hassle they are going through to complete the process.

Having waited for a whole day, and some for more than that, most are not tolerant when too many people crowd the windows because it gives a chance for some to jump ahead of their turn. And so they clap, every 20 minutes or so, as a signal for people to disburse from the windows.

Behailu Tena, a 35 year old importer of used cars, however, was sitting apart from the crowd on a side bench, when Fortune visited the Ministry, onMarshal Tito Street, last Wednesday. He was neither clapping with the others to make sure somebody else does not take his turn, nor was he chatting with the person sitting next to him, like most others do.

This is the second full day he is spending inside the large hectic hall trying to register his business and renew his license.

Being nowhere nearer to his aim at 4:30pm in the afternoon, it was becoming clear to him that yet another day would be spent trying to complete something that ideally was supposed to take from 40 minutes to an hour, in accordance with the new Business Process Reengineering (BPR) the Ministry is in the process of implementing.

For the License and Registration Directorate, the BPR had provided several changes. It had added staff to involve in licensing and registration, increased the number of windows with which to serve customers, setup a special complaint hearing team and provided additional and more comfortable chairs in waiting areas for customers to sit at.

Despite all these changes being made in order to avoid the hectic situation and lag in service time created during the previous year, some of the same problems were repeated this year, much to the frustration of people like Behailu who want to process things fast and go back to running their businesses.

Part of the problem is an influx of people coming at the last minute, according to Nuredin Mohammed, director of the Registration & Licensing Directorate.

"For the Ethiopian month of Hamle, [from July 8-August six], when registration had started only 48 people had come to renew licenses," Nuredin told Fortune. "In the Ethiopian month of Tikimt, [from October 11-November 9], however, more than 12,000 people came."

The Ministry had accommodated around 15,976 businesses seeking registration until the morning of December 1, although the deadline had already passed on November 9. The deadline for licensing is yet to come on January 9. So far, about 21,000 applications are either in process or completely served, according to Nuredin.

The Ministry of Trade expects to accommodate 18,000 businesses this year, up by 3,000 from the previous year. There are 39 employees directly engaged on business license renewal, a significant number compared to the total of 58 employees that the department has, which would have been enough if most people did not rush to the deadline.

"We were counting on an official handling 24 business people a day," Nuredin said.

As it stands, however, the last minute deadline rush has overburdened the Directorate and forced them to still give appointments past November, according to Nuredin. People do not want to come two times for registration and license renewal. Since license renewal requires tax clearance, and businesses do not pay that until the last minute because they want to keep the money in their businesses as much as they can, they always come after October, Nuredin explains.

This is despite many announcements in mass media, especially for Category A and B tax payers whose deadline for taxes ends in July 7 and August 6, respectively, to come earlier. For the next year, nevertheless, the licensing and registration deadline will vary for businesses in different tax categories so that the system will not be overburdened, according to Nuredin.

Businesses, for their part, complain that the system has not improved from last year when getting a license renewed or a business registered was a very tough task.

In July 2011, MoT began implementing the new Commercial Registration & Business Licensing Proclamation, enacted in February 2011, and applied to all businesses. Among other things, the process had required businesses to register anew, based on the International Standard Industrial Classification (ISIC) and the newly created Ethiopian Standard Industrial Classification (ESIC).

Businesses were also required to bring financial proof of the paid-up capital they declare when acquiring licenses, provide proof of a business address including a rent agreement, and also a Tax Identification Number (TIN).

Although not yet fully implemented, businesses also have to bring qualification certification from the sectoral government institutions before acquiring a license.

All these new requirements, coupled with a small number of staff, which moreover has yet to fully know how to use a new registration software system, provided by Custor Computing Plc, had contributed to the lag in the registration process which was taking almost five days to complete in 2011/12.

Despite all the challenges, Behailu had actually managed to take out a business license in just one day last year.

"It's funny, because getting a license should be easier for an experienced person instead of a new comer," Behailu told Fortune. "For me, it was better last year as I was just starting out in the business."

For the current registration period, Behailu came on November 6, three days before the deadline was set to close.

His name was registered in a computer, another new thing for this year, and he was given printout with an appointment date for November 27 at 12:10 pm.

The appointment date also required him to bring a tax clearance, qualification certification and other related documents.

Having completed his tax clearance earlier on October 11, he came on his appointment date, fully prepared. His file was processed very late in the afternoon, and he had paid 204 Br for the license.

However, the person who was supposed to give a final stamp of approval noticed that Behailu's business license says 'importer of new and old cars', but the qualification certificate he had brought was for old cars. He agreed to change his classification to 'importer of old cars' only for an additional 80 Br, for which he had to return yet another day.

When he returned back for approval, he was informed that the tax clearance document is more than a month old, and he needed to get a new one. When he complained that he had come to get a business license three days before his tax clearance expired, he was told to bring a print out of his appointment date.

Business people choose to come when deadline approaches creating crowds and overburdening the Ministry.

It is MoT's policy to accommodate clients even a month after they are issued with a tax clearance, if they had come to take an appointment prior to the clearance expiring, according to Nuredin.

However, this can be no consolation for Behailu.

"The official that first took my case had trashed the appointment printout," Behailu told Fortune.

He filed his complaint with two more officials at the Ministry by the end of the second day. But he finally understood that he had no choice but to go back to his district and get, a tax clearance again.

"To begin with, they should not have let me pay without first having checked that everything was in order in my file," he told Fortune. "I will have now wasted three days, or maybe even more trying to get my license instead of attending to my business. There should be less red tape."

He also thinks that the lag is due to the Directorate being understaffed. According to the new BPR, 87 people are assigned to work in the Directorate, although the number is lower for this year as it is just being implemented.

"There are so many people seeking licenses, and the Ministry should match it with an appropriate number of staff," he told Fortune.

Behailu is not alone in his frustration with the registration process. Behind the benches provided for people to sit, there is a notice posted on the wall reminding customers that they can report complaints to room number 20.

This message was derided by a frustrated businessman last Wednesday, drawing chuckles from those nearby.

"They should rather invite people with no complaints to room number 20, because almost all has a thousand complaints to make," he had said out loud.

Others, however, took the message in earnest and had been filing complaints accordingly.

"Loss of files is the most frequent complaint we hear from customers," Matewos Getachew, member of the complaint hearing case team told Fortune. "Because there are too many people coming to renew their files, this has become a very big problem."

Indeed, one customer had come to shout at Matewos that it had been almost a week since his file was lost, while Fortune was in the process of talking to him.

"We will soon implement an online registration system, where there will be no need for manual files so this problem will be avoided for the next year," Matewos says.

Lost files had also presented a challenge last year.

"Usually files are lost when people leave the room as their files are being processed," Nuredin told Fortune.

Officials normally go through files and process cases, after which they call out the names of customers and tell them that their file has been transferred. If people leave in the middle, then, they will not hear their names being called and where their files had been transferred, according to Nuredin.

However people could have a temporary file opened if original files are not found in 45 minutes, according to Nuredin.

This comes as a surprise to many customers, who had waited days, with no official providing such information.

The senior officials have all been in a meeting in the past week alone which may have created a gap in operation, letting these people wait until their files are found for days, Nuredin told Fortune.

Lack of joint cooperation at other government institutions has also been a problem for business people. Two weeks ago, such business people had complained to the Ethiopian Revenues & Customs Authority (ERCA) that they do not get a fast response when they report that their cash register machine has malfunctioned.

The ERCA requires that businesses report a problem with cash registration immediately. In turn, they are supposed to give a response within 48 hours. However, businessmen complain that this response is not coming in a timely manner, which hinders them from filing taxes based on the summary report of their cash register and getting a clearance.

We cannot renew our licenses because of this, they complained. Some even suggested at the meeting held in Ghion Hotel that the tax filing and license renewal processes be separate.

"This will not happen because the two go hand in hand," Nuredin told Fortune.

The two processes were integrated after a pilot project in Amhara region. The number of businessmen with TIN numbers has increased by 56.8pc to 585,000, according to him.

In the future, however, people may not even have to bring tax clearance and qualification forms as the online registration system will integrate with districts and other government institutions like the ERCA and enable officials to view such documents online, according to him.

It is all a work in progress, according to Nuredin. Once the BPR is fully implemented, and online registration begins, most of the problems will be a thing of the past.

Until then, however, the registration and license renewal will continue to be a nuisance to businesspeople in Ethiopia. Not only then, such processes also hurt Ethiopia's chances of attracting investors.

Ethiopia currently ranks 127th out of 183 countries in terms of ease of doing business. The previous year, Ethiopia had been ranked 111th. The ranking takes into consideration indicators such as the time it takes to start up a business, including licensing.

"Our image is also at stake" Behailu lamented.

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