Addis Fortune (Addis Ababa)

Ethiopia: Govt, Private Sector Make Positive Steps At Forum

Unlike during previous meetings between the private sector and the government, the recent consultative forum between the two parties, held last Thursday, December 26, 2013, seemed to have an air of tranquility. The agenda was focused on addressing the concerns of the private sector.

The discussions, which had been no more than lip service, now seem to have been scaled up to a stronger commitment. This will probably extend even to the amending of proclamations, directives and the Commercial Code, which has been serving as the major trade law since 1952.

At the earliest meeting between the two parties, which was co-chaired by Kebede Chanie, Minister for Trade, and Mulu Solomon, president of the Ethiopian Chamber of Commerce & Sectoral Associations (ECCSA), the parties reached a consensus that selected issues particularly connected to the law. This was after it was identified by a research financed by the International Finance Corporation (IFC) - the private sector arm of the World Bank Group.

The study identified five different points, with a number of the details discussing the legal ground of share companies. This included their establishment, the laws that the companies should abide by in their structures and the rights of shareholders, as well as the general assessments about how the share companies should be handled.

The members of the private sector, who accounted for about 140, also forwarded their queries in a very calm manner. This was unlike the other days, which were full of accusations and complaints. The participants raised questions, which included the issue of trade names.

The points were mainly those on which the existing laws are either silent or do not go in line with the current economic scenario. The issue of trade names, for instance, is addressed by the registration and licensing proclamation no. 686 and, of course, some directives recently put into effect by the Ministry. This is as well as the Ethiopian Intellectual Property Offices (IEPO).

The directives do not allow any company to own collective nouns or descriptive adjectives. As a result of this, the business community spends days looking for trade names, which it expects are acceptable by the Ministry. This was witnessed during the business license renewal that was undertaken up until last week.

To solve the problem, the experts at the MoT usually suggest trade names which are the abbreviated forms of the first letters of the names of the owners . This creates a business scenario clearly against the business principle, according to Mulu.

"Some of the names given by the will of the experts at the ministry are hard to remember, not only by the customers but also to the owners themselves," said Mulu .

Apart from challenges emanating from cumbersome bureaucracy and implementation failure, the forum also discussed the legal issues that need to be addressed by amending a proclamation. These include the way share companies are established and run. That was the prime area of discussion between the two parties.

Attendees also requested amendment to the part of the law that declares share companies should give shareholders their money back if the company cannot begin operations within a year.

"What does it mean?" Asked a participant from the private sector. "To receive land alone takes three years."

The private sector also demanded the need to allow stock market holding companies, and claimed that a merger should not to be seen as capital gain, among others.

The officials at the MoT, led by Kebede, admitted that some of the concerns are proper and timely, promising to address them soon. But they made it clear that the concerns should best be addressed phase by phase. The Ministry is training its experts at the Registration & Licensing Division, so that the issue of complicated trade names will be addressed soon, according to the minister.

To address the other serious concerns of the private sector, a committee consisting of the National Bank of Ethiopia (NBE), the Documents Authentication & Registration Office (DARO), the Ethiopian Investment Agency (EIA) and the ECCSA itself - which is the representative of the private sector - will be organised within a week. They will review which issues should be addressed and how they should be addressed.

The committee, which will be presided over by the MoT, is expected to review not only those issues raised at the discussion on the forum, but also other issues members of the private sector send through to the Chamber within the week.

Apart from organising temporary committees to identify the problems hindering the business of the private sector, the Ministry will also establish an arrangement - probably a directorate - in charge of rectifying the establishment and handlings of share companies in particular. That was, in fact, the first issue the forum emphasised.

"The government understands that this country has potential, but not capital. To address this, the existence of share companies is vital," said Kebede. "The government understands that the way share companies are run is full of mischievous acts."

Share companies have been increasing in sheer numbers, but have continued being problematic, particularly when it comes to the interests of the shareholders, the research paper presented on the forum indicated.

Even more than the share companies, private limited companies (Plcs) have increased alarmingly, the paper indicated.

"This is because of the disappointment of shareholders over the share company's successfulness," it argued.

Most of the share companies formed until 2005 often have only around five members. It was only since roughly 2005/06 that share companies started selling shares to the wider public, thereby creating a larger shareholder base. By the 2011/12 fiscal year, 37 share companies were formed through the initial public offer of shares.

Following the establishment of the directorate, a number of new elements to the trade policy are likely to come from the Ministry. It has already promised the private sector representatives to work on the trust of share companies, at least in the banking and insurance sectors, which are comparatively safer.

"The banking and insurance sectors are riskier than the others," Kebede said. "But people prefer to buy shares in these sectors for it is better monitored than the others. That is what we want to happen."

Monitored by the National Bank of Ethiopia (NBE), the banking and insurance sectors are currently the most secure sectors, which shareholders prefer to buy shares in confidently, according to various studies available in the area.

Such a commitment came only recently, when the two parties started to question the contribution of such forums. Following the agreement, the two parties signed a memorandum of understating, in 2010, to establish a forum designed to steer dialogue between policymakers and private sector leaders by bringing them together in face-to-face dialogue. The two parties hold a meeting chaired by the prime minister each year.

This does not mean, however, each and every issue will be addressed, particularly those related to the law and proclamation.

"Changing the proclamation is not easy," claims Manalegne Ferede, advisor to the minister. "Amendments to the proclamation aimed at addressing the problems that are hindering the country's global competitiveness are sure to come."

Yet, the private sector currently views a more meaningful effect from the forum, as it has already availed it the opportunity to more openly and fairly review and address the issue of amending the laws. This is so as to address the obstacles currently blocking better business inEthiopia, promised in recent times.

"We have been shouting from the one side, while the government was shouting from the other," says Mulu. "Now, we don't have to do that. We rather conduct dialogue over facts."

The confidence of the Chamber president on whether the issues will be addressed entailed a number of the attendees to submit their inquiries to the desk through written forms. This trend will also continue at the Chamber's office in the current week, before the committee, organised from the five institutions, sit to decide upon which issues to address in what way.

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