Private Sector’s Concerns for Ethiopia’s Commercial Code Revsion

Ethiopia’s Commercial Code was enacted in 1960 and many argue that it’s time to revise it to better reflect the changes the country has experienced and current international economic and political dynamics. But what’s the best way forward? Government officials state that they’re working to codify new laws that will govern business practices – and that they’re drawing on internal experts to do so. However, others argue for better transparency and that calling upon international experts from more sophisticated economies – whether they’re Ethiopian or foreigners – will only help to better align the policies with the best practices of other countries. EBR’s Bantayehu Demile spoke with leading experts and researched the nuances of the issue to explore the tensions around the possible revision of the Commercial Code.

In order to realise his modernisation project, Emperor Haile Selassie I launched a massive codification of laws such as the Civil Code, Penal Code, Maritime Code, Civil Procedure Code, and Criminal Procedure Code. Most of these were transplanted from foreign legal systems and were drafted by internationally acclaimed expatriate experts. In similar fashion, Ethiopia’s Commercial Code was enacted in 1960.
Despite heavy criticisms that these Codes were not tailored to the Ethiopian context and did not give enough emphasis to customary and religious laws, they remain in force to date. Major amendments came about only with the revision of the family law section of the Civil Code in 2000 and the Penal Code in 2004.
After more than half a century, the Ministry of Justice (MoJ) recently started an initiative to revise the Commercial Code. In February 2016, the Ministry conducted a public discussion at the Washington Hotel in Addis Ababa on a policy document that will guide the revision process. On the occasion, the officials of the MoJ disclosed that drafting the Code’s four books is almost complete, with only one remaining. They also promised to open the final draft Code for public discussion once it is complete.
In fact, the MoJ’s present revision project is one among many other efforts in more than three decades. These attempts date as far back as the Dergue regime. During the early 1980s, the MoJ undertook a review of the Commercial Code. Reviewers were drawn from relevant government departments, such as the then Ministry of Trade and Industry. “Other than the relevant practical background, reviewers did not have special expertise,” says Seyoum Yohannes, Assistant Professor at the Addis Ababa University School of Law. “They were meeting on a part-time basis to revise the law by going through it article by article, and not guided by well-thought policy.”
After 1991, the Justice and Legal Systems Research Institute (JLSRI) led another attempt through a Commercial Code Revision Committee. “Like during the Dergue’s attempt, members met weekly to go through the Code article by article,” recalls Seyoum, who was part of the JLSRI revision team as a junior researcher. “[Again, it was] not based on an in-depth study of the problem with the purpose of proposing a law that has a programmatic effect.”
In tandem with the JLSRI, the MoJ initiated a revision on the Code led by a French lawyer, Dominic Pounsol. This was funded by the French Embassy in Addis Ababa.
Government institutions were not the only bodies engaged in endeavours to propose amendments. In July 2006, the Addis Ababa Chamber of Commerce and Sectoral Associations (AACCSA) hired a team of 14 national experts to review a draft of the revised version of the 1960 Commercial Code of Ethiopia completed by the MoJ.
The team published a document entitled “Position of the Business Community on the Revision of the Commercial Code of Ethiopia” in July 2008. The Chamber undertook the study after securing permission from the MoJ. The document explains why the AACCSA decided to embark on the project: “As much as [MoJ’s] work is treasured by all likely stakeholders of the forthcoming Revised Commercial Code, the Ethiopian business community, however, felt that its concerns have not been fully accommodated in this noble exercise as it had a very little or no say in the drafting process.”
Again in 2013, the government ordered for a swift revision of the Commercial Code. Selected individuals were appointed and ordered to promptly come up with a policy document that would guide the revision of the Code.
Ethiopia has gone through several socio-economic and political changes since 1991. In line with that, the government has enacted several laws with the aim of responding to the new developments the country has gone through, especially with regard to business regulation. However, the Commercial Code has never been revised. And now the code revision has become a top government priority. “This is evidenced by the fact that the employment letters of the drafters were directly signed by the Prime Minister,” says Endalkachew Worku, head of the Legal Studies and Dissemination Team at the MoJ.
Endalkachew explains why the government feels revising the Code is necessary. “Firstly, as a law from 1960, like any law, it reflects elements of the then feudal, monarchical system,” he says. Similarly, the policy guiding document states that the government wants the new Code to reflect trade concepts of a developmental state political economy.
Secondly, after 1960 dramatic economic changes took place both nationally and globally, according to Endalkachew. Indeed, the emergence of new forms of business organisations, including micro and small enterprises, the growing establishment of international businesses in Ethiopia, the significant expansion of banking and insurance services, and the dramatic change in the modes of carriage of goods are just a few examples.
“The revision is expected to handle these and other important changes,” Endalkachew told EBR. “For instance, we need broader definitions of a trader and trade activities now than were provided half a century ago.” Additionally, global economic dynamics requires nations to revisit their legal systems. For example, legal reform is vital in Ethiopia’s accession to the World Trade Organisation (WTO).
Experts generally agree on the need to revise the Code, yet with minor reservations. “I do not think that our current level of economic development makes the Code obsolete. In fact, there are areas in the law that we have yet to reach,” says Seyoum. “But given the post-1960 changes, assessing the need to revise the laws is appropriate at least as an exercise by itself. In the end, we may either leave the Code unchanged or make slight or significant amendments to it, depending on our findings.”

What Changes May Mean for the Private Sector
Besides the government, different stakeholders hope that the new Code will be an enabler. For instance, businesses providing professional services recount the costs of not being allowed to do business in forms other than a sole proprietorship.
Law offices are a good example of this. “When we work with multinationals, we cannot stand as a one-man show. They have in-house legal counsels who specialise in different areas of law. All these lawyers will come to talk to us,” says Mehrteab Leul Kokeb, founder and principal of Mehrteab Leul and Associates Law Office (MLA). “I lose confidence to stand alone claiming that I am the specialist in all areas of law.”
Founded in 1997, MLA advises and represents local and international clients. The firm exemplifies a central tension in the current Commercial Code: professionals have difficulties performing certain jobs, such as representing multinational corporations, which are necessary as Ethiopia looks to more deliberately insert itself in the global economy.
Multinational companies prefer to call the existing law offices that operate as specialised “boutiques where you get everything in one small place,” according to Mehrteab. “When you tell them that Ethiopia’s existing law does not allow establishing law firms, they cannot comprehend it. It is [uncommon] for them. They find the likes of Ethiopia only rarely. And they ask for what good reason?”
Some argue that the Commercial Code as it stands now may permit establishing law firms as ordinary partnerships by allowing the contribution of skills along with capital, Ethiopian law offices are established by solo practitioners.
Studies also show that Ethiopia more than ever before needs a framework for efficient legal services. A study entitled “Contribution of the Legal Profession to UK’s Economy and Points Relevant to Emerging Least Developed Economies” by Robert Millard of the International Bar Association (IBA), reveals that a strong legal sector in the UK is responsible for London being one of the top three global financial centres, and the reason why the UK is the world’s fourth largest recipient of foreign direct investment (FDI). The study was presented at a 2015 conference to mark the 50th Anniversary of the Ethiopian Lawyers’ Association.
Experts concur with the IBA’s study on the critical role of efficient legal services and provisions in attracting FDI. “As much as the government works to provide roads, electricity, and water, it should also work in creating an enabling regulatory framework for legal service,” explains Taddesse Lencho (PhD), Assistant Professor of Law at Addis Ababa University. “Law is an infrastructure. For a compliant foreign company, quality legal services are far more important than quality roads.”
Moreover, efficient legal service is vital in not only attracting foreign investors but also in keeping them in compliance with the nation’s laws so that the country could derive the maximum economic advantages it aspires to gain from FDI.
Of course, one cannot for sure know what is in the upcoming revised Commercial Code’s store for law firms and similar professional businesses. Yet, MoJ’s Commercial Code revision policy document envisages a limited liability partnership (LLP) model for doing businesses by professionals such as lawyers, accountants, auditors, architects, and business leadership consultants, among others.
Experts commend the LLP model proposed by the government as the best way to strike a balance between the need to assemble specialised expertise and at the same time the need to ensure individual liability. “What makes professional firms unique is that they are not an association of capital as such,” says Taddesse. “They are an association of professionals. They provide opinions as services. Ultimately the individual professionals should have responsibility for their opinions.”
The revision of the Commercial Code is also expected to address other business regulatory gaps. Despite the issuance of the 2010 proclamation governing commercial registration and business licensing, the Ministry of Trade (MoT) is currently revising this law, according to Alemayehu Balcha, Business Registration and Licensing Directorate Director at the Ministry “This law, though commendable in filling the gaps [left by the Commercial Code], still leaves unanswered questions that become sources of good governance problems in the business sector,” he told EBR.
Even though Alemayehu is not sure to what extent the revised Commercial Code would address the gaps in business registration and licensing, scholars see this as an opportune moment to reconsider relevant business-related laws that came into force after the Commercial Code.
But experts stress that harmonisation of such laws with the Commercial Code needs serious attention. “For example, while the Commercial Code uses registration as a way of ensuring the legal personality of businesses, what does it mean for a business that fails to renew its registration according to the deadline set by the specific legislation? If we revoke its personality between delays, what is the impact on business transactions made in the meantime, on the interest of creditors and shareholders, on the business itself? This shows the proclamation’s effect was not studied properly,” argues Seyoum.
Despite the aforementioned aspirations, scholars and private sector representatives fear that the revision may turn out to be futile like previous attempts. They raise at least three concerns.
The first is that the process being followed by the government is not transparent and participatory. A representative from the Ethiopian Chamber of Commerce and Sectoral Associations (ECCSA), who spoke to EBR on the condition of anonymity, says “[the] government is treating the draft versions of the Code as secret documents, thus making it difficult to know what is included or not.” The public discussion held two months ago dealt with general policy issues, not on any draft version of the Code, while the MoJ said the drafting of four of the books was already complete.
“The public, experts or other stakeholders have the right of access to information. They have the right to express their concerns and feedback,” the ECCSA representative told EBR. “Even though the Ministry does not have the obligation to accept any feedback, it has a duty to ensure that people exercise their rights of access to information and freedom of expression. It is saddening to observe that such rights are being violated by the very [MoJ], the nation’s top legal advisor.”
Some claim public participation to supply input on the actual content of the draft is severely restricted. They argue that the MoJ’s consultations with the public are, in effect, validation conferences rather than genuine forums to collect feedback. “What the Ministry is doing is effectively control the extent and channels of participation by stakeholders so that the government is certain that only conventional ideas are supplied as inputs,” argues the ECCSA representative.
On the other hand, officials of the Ministry argue that a draft law is generally a secret document and may not be public until it is enacted. “A draft will be open for discussion only when the government feels inputs have to be included. This is true for any type of law and is the practice in any country,” argues Endalkachew.
The second concern is that the trial and error attempts made so far to revise the Commercial Code reflect the absence of a systematic national reform strategy and lack of an institutional memory, according to Taddesse.
Seyoum adds more factors, explaining this is a hit-or-miss approach on both the government and the business sector sides. “I do not think that we have a [business] constituency that leads an environment-driven, study-based, consistent push for revision,” he explains.
Likewise, the government is not undertaking the project consistently and institutionally. “There must be an institution – be it the JLSRI, the MoJ, or another – that owns the process, that studies the long-term positive and negative consequences of the revision, and that keeps an institutional memory of past efforts,” agues Seyoum.
The third concern is that the capacity of the current drafting team is lower than the Imperial Era codification teams. The drafting team of the 1960 Commercial Code, which is rooted in the French tradition of civil law, included Professor Jean Escarra, French Law Revision Commission Chair. The current revision teams, however, are criticised for not including individuals who are well versed in the nuances of legislative drafting or establishing laws that will align the country with international business practices. This insular approach to revision is similar to the way past Commercial Code revision teams were composed since the Dergue regime.
Experts argue that with the current approach it is difficult to draft a Code that is forward-looking and that effectively copes with the global economic dynamics. They argue after settling ideological issues through policy decisions, the government should have left the technical issues for distinguished experts, preferably foreign comparativists. “The experts need not necessarily be foreigners. They can be Ethiopians, but the key is that they should have exposure in developed markets,” suggests Mehrteab. “For instance, lawyers who practiced in London, Washington or Paris would ideally be aware of the complexities of modern businesses. Even after practicing law for more than 20 years now, there are a lot of things that I have not yet fully understood.”
Concurring with Mehrteab, Taddesse further identifies the budgetary advantages of hiring an international expert. “If the government hires international technical experts, it can request budgetary assistance from international agencies such as the International Finance Corporation,” he stresses. “But it cannot do the same for hiring local experts.”
Yet Taddesse ponders if the country should discover what works through experiential learning: “We may learn through trial-and-error or by following proven experience. The choice is ours. To learn through trial-and-error, we should be in a position to afford both time and budget. Until when can we afford to wait to have a complete code?”
For the Commercial Code to be progressive and of its time, legal analysts say the technical expertise of the drafters has an important role. Taddesse argues that without having experts with global knowhow and background of the local context, the work will be waste of time and resources. “Revised through a taskforce as is underway now, the Commercial Code will be so incomplete and so imperfect that in two to three years time, we will talk about revising it again.” EBR