Waking the Sleeping Giant

The revision of the existing proclamation regulating different level chambers has caught the attention of the business community. In its final drafting stages, it will largely concern the organization and running of Ethiopian businesses under different chambers and sector-based associations. However, the changes offered in the draft proclamation have garnered stiff reservations and displeasure from the private sector. EBR’s Ashenafi Endale explores the business community’s concerns on the draft proclamation.

In the current era of globalization, organizations known as chambers of commerce play an important role towards the creation of a vibrant private sector by representing the interests of the business community and promoting healthy competition.

The importance of such chambers is even higher in developing countries like Ethiopia, where the role of the private sector is low. Although privately-owned enterprises like banks and other companies started to flourish in Ethiopia after socialism ended, the development of the private sector and its contribution to the national economy has improved unsatisfactorily in the last three decades.

The share of the private sector in the nation’s gross domestic product (GDP), which was 23.5Pct in 2003, showed a marginal increment to its current 25.3Pct, according to studies by the Addis Ababa Chamber of Commerce and Sectoral Associations (AACCSA). On the other hand, GDP more than doubled during this period.

Of course, many factors can be raised explaining the weak state of the private sector in Ethiopia. Among the causes, key and foremost is the absence of efficient and effective institutions that protect the private sector’s interest for the last 30 years. Although it has been 17 years since the proclamation allowing the establishment of chambers of commerce was approved, chambers operating at national, regional, and city levels still remain dormant.

Many argue that for the last two decades the government subdued chambers intentionally to hinder the private sector’s growth. “Although some business leaders used to have the privilege of contacting top officials for problem solving solutions, the majority had little or no voice,” recalls Kebour Ghenna, former President of both the Addis Ababa and national chambers. “Basically, chambers are established to do what government cannot do by itself. Government has no skill-set to solve daily business problems.”

Mesenbet Shenkute, President of AACCSA also believes that chambers established at the national, regional, and city levels have not been successful in terms of protecting the interests of the business sector. “Because of the existing legal proclamation, chambers are too weakened to function at their optimum power.”

The leaders of the chambers couldn’t do their job for the past two decades. “Representatives of chambers of commerce were not active enough to protect the interests of the private sector by exploiting the privileges provided in the existing law,” argues Kebour.

In a bid to change this situation, the administration of Prime Minister Abiy Ahmed (PhD), which took power in April 2018, initiated the revision of the 17-year-old controversial proclamation. In December 2020, the Ministry of Trade and Industry (MoTI) sent the highly anticipated draft proclamation to replace the one introduced in 2003 to selected private sector leaders. “The government has initiated the revision with a view of building a private sector capable of influencing public policy and accelerating the country’s export and industrial growth,” said Eshete Asfaw, State Minister of Trade and Industry during the consultation workshop held on December 25, 2020.

The experiences of Germany, Russia, and other countries were taken into consideration while crafting the draft proclamation, according to Eshete. “Various economic activities, such as online trading, are now expanding globally. Ethiopia also joined the continental free trade agreement, AfCFTA, and the country is in the process of joining the World Trade Organization. These are the reasons behind revising the current proclamation besides elevating the private sector to cope up with upcoming changes,” said Eshete.

Mesenbet says the amendment was necessitated for two reasons. “The existing proclamation does not consider the current international situation. Secondly, it does not accommodate manufacturers and traders on an equal basis.”

The draft proclamation, dubbed ‘Chambers of Commerce and Industry Establishment Proclamation’, has three parts and 35 provisions. One of the major changes is the inclusion of sole proprietorships alongside private limited and share companies. Under the existing law, only representatives of city chambers and sectoral associations, regional sectoral associations, and woreda sectoral associations are allowed to be members of regional chambers of commerce and sectoral associations. But, according to the new draft proclamation, sole proprietorships, private limited, and share companies will be allowed to be members of chambers established at the regional level.

“The existing proclamation does not represent manufacturers,” explains Tekalign Kedir, who led the crafting team at MoTI.

Another bone of contention is that only company owners are permitted for membership, in contrast to reality as it is managers that are closely involved in the day-to-day activities of companies.

Kebour also argues that grouping traders and manufacturers together, with their differing interests, is not a wise move. “Currently, there are big divisions within the chambers established at the national, regional, and city levels. The rifts even extend to personal feuding amongst members. That is why chambers have been inactive and inefficient in past years.”

The draft proclamation also ignores the bottom-up and grassroots organizational structures. For instance, in all the provisions of the draft proclamation, nothing is mentioned about the establishment of chambers at a city level. “Against the experiences of other countries, the draft proclamation rejects city chambers,” explains Yohannes Woldegebriel, Director of the Arbitration Institute at AACCSA. “Cities are the starting point for the formation of a national chamber.”

In its 11-page long recommendations sent to the MoTI regarding issues that should be considered, AACCSA echoed that chambers should be established near its members. It went even further by recommending that the draft proclamation should allow chambers to be formed at major economic centers like industrial parks and economic zones.

Gessesse Teshome, a private sector representative argues that trade has no boundaries. “So, chambers should not be limited by administrative boundaries. Structuring chambers only along regional administrative structures is meaningless.”

Another major issue regards the income generating activities to be conducted by chambers, seen by many private sector representatives as against the value of the bodies.
While some say that the main objective of chambers should be provisioning services for the business community rather than operating like a profit-oriented organization, Kebour states that fees paid by members for services rendered can be a source of income. “Globally, there is a mechanism where private enterprises are trained and certified by chambers and then licensed by trade bureaus before going operational. When chambers are allowed to provide such services, their membership as well as revenue will increase dramatically,” he says. “Currently, the majority of firms do not access chambers’ services, although they pay a membership fee.”

Membership is the major issue in chambers at all levels. Businesses and producers operating in Ethiopia are reluctant to join chambers. Even the oldest and largest chamber in the country, AACCSA currently has only 17,000 members, although there are over 300,000 businesses in the capital and 1.6 million active businesses nationally.

The other area of disagreement is on the basic status and model chambers are operating. Globally, there are three types of models. In the first, continental model, chambers are created through national legislation. The current and expected proclamations are crafted based on this model. In addition to Ethiopia, African countries like Egypt, Algeria, and Morocco as well as European nations such as Germany, France, and Italy follow this model.

The second sort is the Anglo-Saxon model where there is no government legislation to regulate the affairs of chambers. This model is followed by countries like South Africa, Zimbabwe, Namibia, the United Kingdom, Sweden, and Denmark.

The third type, known as the mixed model, borrows vital concepts and principles from both the continental and Anglo-Saxon models to guide chambers’ operations. This model can serve Ethiopia better, according to Kebour.

An expert on chambers, Kebour argues it is wrong for MoTI to craft the chamber’s entablement proclamation alone. “Only one representative was included from chambers. This cannot represent the interests of all private operators in the country.”

“After the private sector crafts its own version, it can merge with the draft proclamation prepared by the government,” he explains. “A better proclamation blended from both versions could be ratified finally, if government really wants to empower the private sector.”EBR

9th Year • Feb 16 – Mar 15 2021 • No. 95