“Ethiopia Needs a Quantum Economic Leap to Survive.”

Mehrteab Leul Kokeb, a leading corporate financial services Lawyer in Ethiopia, has been practicing law for nearly three decades. After earning his law degree from Addis Ababa University in 1992, he worked as a judge in the high court and also as a litigator in the early 2000s. He then partnered with DLA Piper, a London based global law firm with offices in more than 40 countries, and joined the firm’s network by founding Mehrteab Leul & Associates (MLA) Law Office, a de facto law firm advising and representing corporate clients on business and investment issues in Ethiopia. Mehrteab has also studied financial services law at the University of London.Working with over 20 lawyers, MLA advises companies ranging from start-ups to multi-national companies. Coca-Cola, Marriott Hotels, Exim Bank of China, China Development Bank, and Japan Tobacco International are few among the corporate clients of MLA. He also advises government institutions on a pro bono basis. He was a member of the professional working group that drafted the new investment law and commercial code.

Mehrteab, currently serving as Principal of MLA, says it is difficult to deliver proper legal services to international clients without forming as an actual firm because international and corporate clients come with various issues encompassing employment, finance, tax, and intellectual property, among others. He hopes that the draft legal framework will allow the establishment of law firms in Ethiopia. With that, he plans to transform his de facto law firm into a de jure one.

Although MLA draws more than 95Pct of its clients from overseas, Mehrteab is optimistic that things will change soon as the country is in the process of joining the World Trade Organization (WTO). He says, this will change the way we do business. He also stresses that Ethiopia cannot grow while isolated from the rest of the global economy.

As the scale of the economic challenges facing Ethiopia now are colossal—one that could even cost the very survival of the nation—Ethiopia needs to draw valuable experiences and pool capital and technology from overseas, he argues.

Mehrteab believes that Ethiopia needs a quantum economic leap to survive. According to his anlysis, joing the WTO widens economic opportunities. A team of EBR editors sat down with Mehrteab to discuss on the investment climate in Ethiopia and his firm.

There is no legal framework allowing the establishment of law firms in Ethiopia. Under what pretext is Mehrteab Leul & Associates Law Office (MLA) established?
MLA is a de facto firm. I work with 21 lawyers. Legally, we work under an employment arrangement. A draft legal framework permitting the establishment of law firms in Ethiopia is currently being finalized. Once it is approved, we will change our status from a de facto firm to a de jure law firm.

Do you see a growing demand for law firms in Ethiopia?
The practice goes hand-in-hand with the size of the private sector and growth of business activities. But in Ethiopia, the private sector is at a very nascent stage. So is business law practice.

Does this mean there is no need or demand for the services of law firms in Ethiopia?
In fact, the reverse is true. It is difficult to deliver legal services without organizing as an institution. For instance, a corporate client comes with various issues dealing with employment, finance, tax, and intellectual property, among others. One person cannot provide all these services. Therefore, to be organized as a law firm is crucial.

The government also needs the services of law firms. Currently, the government is developing infrastructures through Public Private Partnership (PPP) schemes. The legal aspect of such projects is so detailed that up to 25,000 pages of legal documents could be prepared to streamline the financing of a single project under a PPP program. It is difficult to think of implementing such projects without the involvement of law firms. We are currently working on two big energy projects being implemented through PPPs.

Do you handle litigation cases now?
In the past, I was a leading litigator. But after I started working with foreign investors entering Ethiopia, I have stopped providing litigation services. In fact, the litigation business is over saturated. So, I am no longer a litigator.
If you go to countries such as the UK, lawyers are categorized into barristers and solicitors. Barristers go to courts and handle litigation cases. On the other hand, solicitors are lawyers who support business enterprises during transactions. In the UK, over 90Pct of lawyers are solicitors, while litigators (barristers) comprise less than 10Pct.
Reversely, 99Pct of lawyers in Ethiopia spend their time on litigation. Therefore, the litigation work is highly saturated. But there is room for lawyers who facilitate transactions and support corporate activities. In this area, there is no competition thus far.

But sometimes, a corporate client might have a litigation case. For instance, MLA recently handled Crown Plaza’s trademark dispute in Ethiopia. Other than that, we do not work with individual litigation clients anymore.

Some big companies have their own legal departments with many lawyers even. In that case, why do they need your services?
You are right, many of our clients, have in-house lawyers. But these lawyers don’t have all-rounded knowledge regarding the laws of the country. Therefore, in-house lawyers need support from law firms with specialized services in certain laws. When we recently represented Coca-Cola in a competition case, we worked with the company’s in-house lawyers.

Is there competition from other de facto law firms while trying to handle foreign investors’ cases?
There is no competition. This is because most Ethiopian lawyers handle litigation cases. The only time we have faced a challenge in our services is now, because of COVID-19. It adversely affected the activities of foreign companies in Ethiopia. In any case, we don’t have problems in finding clients. In fact, business has been reviving as of last September, after more than six months of slow-down.

So what’s your major challenge?
Our main challenge is that we cannot find lawyers with the right skill set in the market. For instance, we have clients in the energy sector but couldn’t find lawyers specialized in energy.

MLA might look like a big firm but it is insignificant compared to firms operating in Nairobi. Iseme, Kamau & Maema Advocates (IKM), our counterpart in Kenya, has over 100 lawyers. Yet it is not the top law firm in Nairobi. If you go to South Africa, you can find law firms employing more than 1,000 lawyers and other global firms have up to 5,000 lawyers. .

What percentage of your clients are local?
Local companies do not think lawyers can add value to their businesses until they face troubles. We are not working with local businesses because we do not do litigation. But opportunities to work with more local businesses are on the way. In Ethiopia, there is no corporate culture. Owners control everything. But few are implementing corporate governance to systematically manage their business. Ethiopia is also in the process of joining the World Trade Organization (WTO). This will fundamentally change the business landscape.

In addition, Ethiopia has ratified the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards. If an Ethiopian business signs a transaction contract with a foreign company, disputes could be subject to international dispute settlement mechanisms. These developments will definitely change the way we do business and necessitate professional legal advice.

How much do you charge for your services?
We charge USD300 an hour.

Can we talk about MLA’s revenue last year?
It was over a million dollars. Our rate seems expensive considering Ethiopian standards but our partners in Nairobi charge far above our rate. In the UK, they charge GBP1,000.

Do you offer pro bono services?
We uphold pro bono services seriously. We participated in the preparation of the new Ethiopian investment proclamation and regulation. We also supported the preparation of the startup proclamation by the Job Creation Commission. MLA has also rendered services in the crafting of the new Commercial Code of Ethiopia.

What about for individuals?
Yes, we provide services for individuals free of charge. For instance, we have handled cases of people with HIV, refugees, and physically handicapped people. In fact, we allocate dedicated time for this purpose annually.

How do you assess the impact of the instability in Ethiopia on the flow of foreign direct investment (FDI)?
The annual flow of FDI to Ethiopia has been around USD3 billion until recently. But it declined by 24Pct in 2019. The reason could be the instability we have seen in the last two years. In fact, political stability is one of the most critical criteria determining the destination of investors.

All the information foreigners have been receiving creates a negative image about Ethiopia. For FDI flow to increase there needs to be a very stable, consistent, and comforting political environment.

Let alone FDI, Ethiopian investors are not welcome to invest outside their native region. This is attributable to the political situation in the country. But the government is trying its best to attract investors from abroad. Is this not a paradox?
I do not see it as a paradox. It is more of a survival issue. The government must do whatever it can, including attracting FDI to sustain economic growth.

Although the government is investing huge resources to attract foreign investors, like developing industrial parks, the benefit ordinary citizens get is low because they are minimally paid at less than USD30 a month. How can we rectify this?
Most foreign investors and companies are coming to Ethiopia looking for cheap labor. There are millions of unemployed people in Ethiopia looking for jobs. Foreign companies pay less because they know there is no shortage of labor.

On the other hand, most foreign investors in Ethiopia, including those operating inside industrial parks, know they cannot succeed if their employees are unhappy.

To reconcile these realities, the government should introduce a minimum wage that is legally binding across Ethiopia.

Does the new investment proclamation favor domestic investors?
I was a member of the working group when the new investment law was drafted. The proclamation opened doors wide for both local and foreign investors equally. Domestic investors are required to have an investment permit only if they want incentives such as corporate income tax holidays and duty-free privileges. But it does not give special treatment to domestic or foreign investors. They are expected to compete.

Don’t you think domestic investors should have an advantage over foreign investors?
Ethiopia cannot compete with any country, with the current high production costs. On the other hand, the local private sector must flourish and fill the investment gap. So, there must be an optimum utilization of resources.

What must be done to uplift the local private sector?
If the Ethiopian private sector has to grow, it must be able to compete with other countries. When this happens, Ethiopian companies can operate outside of Ethiopia and become successful. But an Ethiopian firm cannot follow a pan-Africanist business model and operate in other African countries because there is no legal framework allowing capital account movement. This means, an Ethiopian company cannot go and open a business in Djibouti or Kenya. For instance, MLA is successful in Ethiopia but if we want to open an office in other countries, we cannot. Ethiopian businesses are cursed to stay local.

Limited access to finance is the main obstacle for the growth of the private sector. What should be done to remedy this?
Banks disburse loans for those who already have money. So, small and medium enterprises (SMEs) become the victim. SMEs are most affected by the absence of [adequate and affordable] finance in Ethiopia.

Modern economies have many specialized banks like investment banks. Ethiopian banks have no investment wings. There is no portfolio investment in Ethiopia.

There are some foreign investors who want to finance SMEs. But Ethiopia’s investment law does not allow foreigners to invest less than USD200,000 in Ethiopia. In the USA, countless SMEs mushroom from the ground, using equity financing. But in the case of Ethiopia, there is no legal framework allowing equity and angel investors to inject finance into startup ideas. But in Ethiopia, as the minimum investment capital is USD200,000, many foreigners are unable to invest in startups. Private equity investors and other investment funds must be able to move without pre-conditions.

Can floating shares be part of the solution for the access to finance problem?
In other countries, public fund mobilization has its own regulatory body. The fund mobilizers in Ethiopia can do whatever they want because individuals try to build public trust first only until they collect funds to execute the process.

Investment is highly regulated in Ethiopia. The central bank mandates financial institutions not to invest above a certain level. The financial industry has capital limitations. It is critical for Ethiopia to permit foreign institutional investors to bring their own capital and fill the investment gap.

Do you think Ethiopia will benefit by joining the WTO?
Accession to the WTO is critical for Ethiopia to encourage economic competition and sustain growth. Ethiopia cannot grow isolated without integrating with the global economy. We must produce goods and services and trade with the rest of the world based on the principles of free trade. I do not believe Ethiopia’s economy will see a drastic change without accepting free trade and joining institutions like the WTO.

Ethiopia’s economic challenges are enormous and we lack capital and technology to develop our local investors. So we have to attract more FDI to fill in the gaps. For that, Ethiopia needs to integrate more into the global economy. I believe Ethiopia needs a quantum economic leap to solve the gigantic economic challenges that it currently faces. For that to happen, we need to open up the economy.

But Ethiopia cannot meet international standards now.
When a least-developed country such as Ethiopia joins the WTO, it is granted a grace period to adapt itself and start meeting certain standards gradually. The WTO allows us to exploit the global market.

But is it feasible to compete globally as we are not even competing well in our own market?
It is totally wrong to conclude Ethiopia has no competitive edge in the global economy. We must prepare ourselves and join the global economy and trading platform. We must prepare a strategy to utilize the WTO. We have abundant potential. If we negotiate well, joining the WTO can help us improve on our limitations and maximize the benefits from our promising potential. Joining the WTO is not detrimental to Ethiopia’s growth.

What are the benefits of joining the WTO for Ethiopia?
It offers market access. This ignites domestic economic growth and boosts exports. The amount of product and service exports from Ethiopia will grow exponentially. Ethiopia’s export revenue could not pass USD3 billion for the past decade now. The organization is a great opportunity to save Ethiopia’s export sector.

Do you think public institutions in Ethiopia have the capacity to regulate the market, especially when the economy integrates more with the global economy?
Some institutions are good; some are incapable. But the overall performance thus far is below average. I doubt if the National Bank of Ethiopia has the capacity to regulate foreign banks, as it is now. Government must redirect its focus from traditional roles to continuously build its capacity.

How do you evaluate Ethiopia’s consumer protection laws?
Consumer protection is a new concept for Ethiopia. Consumer protection and liberalization complement each other. For instance, telecom liberalization ends the monopoly and creates alternatives for the consumer. Liberalization is pro-consumer. Because of the liberalization and partial liberalization of the telecom sector, costs will decline and services will improve—benefiting the consumer. The Trade, Competition, and Consumer Protection Authority was established ten years ago and is facing several challenges in terms of ensuring consumers’ rights.

Do you participate in the Ethiopian Lawyers Association?
We support the association financially and in other technical areas. But litigation practitioners dominate the bar. The association is more focused on the penal code and court litigation when organizing workshops. This does not interest MLA much. But we support and participate because the professional association is necessary. In fact, in the past I have served as Secretary General of the association for five years.

How has the change of administration in government and the reforms implemented in the last two and a half years impacted the profession?
In the past, the Office of the Attorney General could revoke a lawyer’s license for the slightest mistake. I have seen many lawyers and offices like mine vanishing because their license was revoked just because they didn’t support the politics. There were also lawyers and law firms that started from scratch and grew with the support of government officials. This does not give you confidence. I do not think this is the case currently. It is better now, although we are not 100Pct protected.

What is your political inclination?
I totally distance myself from politics. Currently, I am working with over 300 corporate clients. So, my political inclination will affect them. If I become a member or supporter of a certain party, my clients might be labeled similarly. So I distance myself from politics.

We have agreements with international law firms. The agreements stipulate that MLA must distance itself from all political activities, meaning I cannot even contribute money to any political party or participate in any party meeting. The professional service we provide requires independence. EBR

9th Year • Dec 16 2020 – Jan 15 2021 • No. 93