BizCLIR

Certain cross-cutting themes emerged in the CLIR and Trade Diagnostic in Ethiopia. These themes include the following and are discussed in turn:
 
• Notwithstanding certain efforts toward reform in recent years, the capabilities and potential of the private sector in the Ethiopian economy are undervalued by the Government, while the Government remains over-invested in participating in and regulating the economy;
• As competitive forces increase across many sectors in the economy, improving access to capital, to markets, and to other types of service providers is essential for private enterprises to flourish;
• Ethiopia has a great deal of promise to emerge from its status as a Least Developed Country, with a number of specific opportunities and advantages that should be seized and exploited in the near future;
• To achieve broad-based and sustainable improvements in the Ethiopian economy, legal constraints against the participation of women must be removed, while institutions that encourage the participation of women in the economy should be supported; and
• Ethiopia’s opportunities in legal education represent a powerful source of grass-roots support for commercial law reform in the near and mid-term.

Industrial Policy and Low Competition
Throughout this Diagnostic, a number of constraints to the private sector became evident, suggesting that the State remains reluctant to cede control as the primary economic engine in the Ethiopian economy because of a belief that the private sector will not be able to lead the way toward sustained economic development. The State continues to reserve for a few powerful players—including State-owned companies and Party-owned entities—many of the most viable and economically important commercial opportunities, thereby turning its back on the growth potential presented by freer competition and improved access to productivity-enhancing services for private companies. The State also exhibits insufficient interest in dismantling its cumbersome bureaucracy, widely reputed to discourage domestic and foreign investment.

Evidence of these issues includes the following:
• Strategic sectors of the economy that are dominated by the State (e.g., financial services, telecommunications) and strategic sectors dominated by party-owned enterprises or politically influential groups (e.g., cement production and distribution) severely limit the possibility for growth of private enterprises in these sectors. Interviewees complained that certain sectors, most notably construction, were severely constrained by the favoritism received by politically connected entities in the process of import licensing.
• State-owned companies are not organized under the Company Law and thus are not subject to its rules and protective provisions (although they are covered by—and occasionally reorganized under—the Bankruptcy Law).
• Although foreign investors may now undertake certain activities that were previously reserved for State bodies—including air freight, the import of propane and butane gas, and travel and tourism—certain critical areas remain off-limits to foreign investment, most notably financial services, telecommunications (joint ventures only), shipping, and retail distribution. Foreign exchange accounts, payments, and currency transfers are subject to significant controls and restrictions, as are capital transactions. As discussed in this Report’s section on Secured Transactions (social dynamics), the State’s policy interest in protecting banks seems to be an overriding concern that competition will lead to failure of the existing banks. The notion that competition will lead to greater market efficiency and improved access to capital for private business and consumers has not yet taken hold.
• Ethiopia’s Competition Law, enacted in April 2003, represents a promising step toward greater competitive freedom in the economy. Unfortunately, the law also contains certain provisions that will continue to protect the anti-competitive nature of various State-owned and even party-owned enterprises. The law in effect grants the State broad and flexible powers to exempt many consumer goods from competition. This power to regulate prices, when viewed in conjunction with the fact that the retail sector is largely closed to foreign companies, suggests a lack of confidence in and commitment to competition as an effective regulator of supply and demand for consumer goods and services. More ominously, it suggests undue political concerns with maintaining control over certain sectors, rather than a more broad-based interest in setting a level playing field as a foundation to a competitive economy.
• Moreover, Ethiopia’s Trade Practices Commission, established in 2003, has the authority to exempt from enforcement of the Competition Law any enterprises that have “significant impact on development and [were] designed by [the] Government to fasten growth and facilitate development” and “basic goods or services that are subject to price regulations.” This broad discretion of the Commission to exempt enterprises from the law, and to do so ex post facto, does not provide the assurances and predictability that would encourage innovation, expansion or entrance by entrepreneurs whose success depends upon free competition. Rather, it suggests a gratuitous loop-hole for State or party-owned enterprises.
• In the area of real property, the laws and all persons interviewed made it clear that, even beyond remaining restrictions on the ownership of land by foreigners and nonresidents, State regulation is extensive, multi-layered, and heavy handed. A person’s acquisition and actual commercial use of the land that he or she holds can be subject to numerous approval processes at the federal, city, region, woreda, and kebele levels which are not always transparent, predictable, or consistent from area to area.
• State intervention in the flow of goods across borders similarly places enormous constraints on economic activity. For example, coffee exports must be inspected by the Coffee and Liquor Unit of the Ministry of Agriculture for quality control purposes after the shipment is loaded for export. This requires the transporter to make an additional stop on the way to the port and is an example of Government involvement in an area usually negotiated and resolved between the private parties to the transaction. Similarly, meat exporters face regulatory restraints with up to 10 institutions overseeing the export process. Most exported agro-products require a minimum of two inspections, which are performed sequentially rather than simultaneously. All these inspections add costs and delays to the shipment.
• The State controls most of Ethiopia’s radio and television stations, the primary source of information for a populace that is about two-thirds illiterate. There has been some loosening of control over the media—two private FM radio licenses have been awarded recently, for example, and the private press has felt able to express more criticism of the Government in recent years, although not without significant restraints. However, the Government continues to suffer from an absence of critical feedback and dialogue on its political and economic policies that could be fostered by more liberal media policies.

This Report details these and many more examples of a State apparatus that, although reform-minded in certain respects, remains unwilling at its core to release its extensive control over commerce and allow the emergence of an economy that is truly competitive and dynamic to a degree necessary for its citizenry to take advantage of all of the opportunities that may be available to them. At the same time, the State has not met the country’s substantial need for a strengthened national infrastructure that will bolster its ability to transport and export goods to regional and international markets. Unless the State pushes toward greater competition in the economy, which includes increased focus on its infrastructure and reduced concentration on unnecessary bureaucratic constraints, its efforts to date will become nothing more than “half-measures,” which could ultimately prove less helpful than no measures at all.

Sharing Top Billing: Better Access to Credit, Markets, and Services
Despite significant advances in economic freedom in Ethiopia and the rationalization of policies that followed, entrepreneurs in just about every economic sector must learn to succeed in a hostile business environment. Small and mid-sized farming concerns and other entrepreneurs who seek to raise their businesses from the ground up face a particularly difficult business environment that has not yet adjusted to wholly meet their needs. This Report identifies and discusses the following constraints, both direct and indirect, on access to capital (that is, the ability to borrow money) and access to markets:
• Limited use and availability of funding and modern collateral devices (including leasing);
• Over-regulation of banks;
• Limited credit information;
• Limitation of borrowing power due to “over-collateralization”;
• Problems in identifying land use rights, which in turn undermines the use of land as collateral for lending;
• Insufficient recognition of useable collateral (chiefly, movable and intangible property);
• Minimal borrowing opportunities outside of cities;
• Absence of a national collateral registry of movable goods;
• An underdeveloped system of warehouse receipts;
• Lack of professional expertise among lawyers and judges in credit-related matters; and
• Inadequate physical infrastructure providing access to markets, including poor roads, expensive transport costs, and negligible rail service.

During Ethiopia’s most recent famine in 2003, observers noted that insufficient food resources in Ethiopia were not the culprit, but blamed rather an “incomplete” market system in which the private sector could not meet vital needs for warehouses, crop insurance, transport, and other factors that collectively would have prevented wide-spread hunger. To meet these needs in the future, individuals and firms would need access to capital, including access to bank loans and access to regional and international markets. The urgency of a broad-based program that would support greater access to capital, markets, and services in Ethiopia—through systems that offer sufficient confidence to lenders—cannot be overstated.

What Works Now and What Could Work Better Soon: Seizing the Short and Mid-Term Opportunities
Notwithstanding the many difficulties Ethiopia faces, the country in fact enjoys a relatively strong basis for commercial law and institutional reform, as well as continued development in trade. For example, this Diagnostic found Ethiopia’s commercial legal framework, though in need of significant updating for modern commerce, to be basically sound. Many other Least Developed Countries present far more formidable challenges in legal reform, which is often considered a prerequisite to meaningful institutional change. Although updating the legal framework should certainly continue to be a priority, it is one that can and should be achieved in relatively short order.

In addition, against an extremely challenging physical and socioeconomic environment, Ethiopia has pockets of real economic progress that show reform growing from within its network of implementing institutions. These include meaningful steps in recent years toward civil service reform, improvements in Customs procedures, and streamlined procedures in company registration. In light of this progress, the challenge now is to sustain and build upon existing institutional momentum. As detailed in this Report, particular opportunities for short and mid-term reforms—ones that need not be overly complex or expensive—include the establishment of a national collateral registry; bolstering the role of professional and trade associations in contributing to macroeconomic reform and educating their members and the public; empowering and providing technical support to certain critical State players, such as the Trade Practices Commission and the Foreign Investment Agency; and seeing through institutional improvements to the country’s system of land ownership.

Moreover, Ethiopia has made choices in recent years that will facilitate further legal and economic reforms. The decisions to join the World Trade Organization has set in motion a number of studies and technical assistance activities which should yield far-reaching benefits even if the process is not moving as quickly as expected. Again, Ethiopia’s challenge is to sustain the momentum of reform.

Including Women in the Opportunities of CLIR and Trade Reform
Women’s empowerment in the marketplace is still a problem. In recent years, Ethiopia has taken some steps toward integrating women into its commercial sector reforms. However, the status of women remains vastly under-valued in the Ethiopian economy.

Most of the efforts of the Women’s Affairs Office (WAO) in the Prime Minister’s Office in the Government of Ethiopia (GOE) have been directed at poverty eradication, education for girls, and violence against women and girls, a focus that has resulted in increased economic opportunities for women. Examples of these reforms include a National Policy on Ethiopian Women, which aims to facilitate the conditions necessary to bring equality between men and women in Ethiopia. In addition, in May 2006 Ethiopia implemented a five-year Plan for Accelerated and Sustained Development to End Poverty, which includes gender as a pillar. Ethiopia also has in place a gender-aware agricultural development pilot program, and a commitment to revising its Civil Code in such a way that allows for men and women to be given the same rights in succession of property.

Nearly three-quarters of the population of Ethiopia is dependent on agricultural livelihoods. As a result, both the Government and various nongovernmental organizations (NGO) have focused their capacity-building efforts for women in the agricultural arena. The “Improving Client-oriented Extension Training” program, funded by the Dutch and implemented by the Ministry of Agriculture, is one example of this focus. This program allows for agricultural extension agents to be trained with a gender-aware curriculum that recognizes women as vital co-participants in the traditionally male-dominated areas of field crop and large livestock care. The program also allows for the development of a gender-conscious structure for planning and implementing agricultural development programs based on the findings of the trained agents.
In addition, there is work in progress to revise the country’s Civil Code to accommodate equal property rights for both men and women. The revised Code specifically has the potential to assist women in Private Limited Companies (PLC) with their husbands to govern the family farm. Currently, if a woman is widowed, she is expected to sell the farm or take on another partner, usually a male relative, to continue business. The revised Civil Code would allow a widow to continue her business without the additional male partner. Its complete revision to allow for gender equality throughout the economy should be an immediate priority.

An African proverb says that “Habits are first cobwebs, then cables.” Though progress may seem slow, current activities have the potential to provide a robust platform for removing barriers to gender equality in Ethiopia. A small but determined contingent of grass-roots parties’ seeking women’s equality could benefit from continued technical assistance and support.

The Foundation of Sustained Legal Reform: Opportunities in Legal Education
Legal education is an oft-forgotten yet critical component of the four-cornered foundation for a solid, energetic legal culture. Those four corners comprise legal education, civil society, government/judiciary, and the practicing bar. Each component of this foundation must be strong enough to provide support for, as well as a check against the power of, the others. Although legal education in Ethiopia presents serious and obvious deficiencies, the core of a strong educational ethic, and well-educated and enthusiastic faculty, provide an excellent starting point for development.

Two surprises greet first-time visitors to the Addis Ababa Law Faculty. The first is that the building is literally falling apart. The former residence of the Emperor’s children, and rather eerily still presenting a touch of its faded grandeur, the school has apparently lost much of its structural integrity. Window frames are skewed into decidedly non-rectangular shapes, and, during the week of this Diagnostic, at least 30% of the library’s table space was covered with plaster that had fallen from the ceiling.
The other surprise, consistent with the first only in its visual impact, is the stacks of hundreds of student theses that nearly fill one room of the school. Each student graduating with an LLB must complete one of these carefully supervised papers in English. Most papers were in excess of eighty pages and immediately identifiable as works of very high quality, easily as well researched and written as student papers in Europe and the United States.

These two surprises go a long way in illustrating the troubling irony of legal education in Ethiopia. The students and faculty perform work that far outstrips the ability of the country’s infrastructure—as well as the interest emanating from the other three corners of the foundation—to put it to good use. Thus, the theses lie in haphazard stacks in a dark room within the crumbling law faculty building.
Until 1995, the Addis Ababa University (AAU) Law Faculty was the only law school in Ethiopia. (In the past 11 years, seven public law faculties, and at least three private faculties, have been opened. A number of additional faculties, mostly public, are planned over the coming years.) Founded in 1963 by Emperor Haile Selassie near the end of his huge efforts to modernize the Ethiopian legal system, the AAU Law Faculty remains the most respected. The faculty prospered, with the help of a group of foreign legal scholars, until the Derg regime took power in 1974. The school suffered through the regime, as did everyone and all infrastructure, until 1991. In the years since, the school has risen and fallen periodically in Government favor. Recently, it has undergone rather dramatic funding cuts and its authority over admissions and curriculum has been taken away by the Ministry of Education.

A new effort has begun, however, by members of Ethiopia’s community of legal educators to make positive changes to the entire system by developing a lengthy draft document entitled Reform on Legal Education and Training. The suggestions made in the draft, if adopted by the Government, would allow the AAU Law Faculty to prosper once again, while also allowing for the expansion of opportunities in legal education in Ethiopia.

Though the rule of law is itself an ideal and never perfectly manifested in any society, it is generally assumed that the strength of legal capacities in any society depends upon how broadly and deeply the rule of law reaches into the public psyche. Legal education is a critical component in any program to establish the rule of law in the public psyche. Those who provide the legal service in a working democratic society have immense influence on attitudes toward the law. Those who train lawyers are key to the attitudes and approaches taken by those lawyers in their effect on society.


A focus on legal education has been used with varying degrees of effectiveness throughout the past 30 or more years in attempting to establish the rule of law in states in transition. Early in that period the Law and Development movement was the vehicle of choice for educators and donors, putting the emphasis on judicial reform and training. One assumption was that improvement in the structure of the Government would trickle down to the general public and would in turn lead to strengthened social development. Another was that courts played the same role in transition civil law democracies as in mature and mostly common-law developed nations.

A newer rationale supplanting this top-down approach focuses on legal culture immersion, on the influence of the legal profession on a culture of rule of law, and aims at impacting those who will train the next generation of members of that legal profession. This approach is based in part on the overwhelming role of lawyers in the establishment of successful democratic systems, including the Constitution and early Government of the United States of America, and the various successive treaties supporting the evolution of the European Community and European Union.

With respect to legal education, this Report’s recommendations reflect the belief that quality legal education can be a cause, rather than an effect, of the rule of law and effective commercial legal systems:
• Make the student theses available online. These works contain a wealth of knowledge directly relevant to many of the issues that our team was researching. Making them publicly available—preferably on a U.S. law school website—would be a nearly cost-free exercise that would have immediate and dramatic impact.
• Establish faculty training programs. Teaching the teachers is, of course, a fairly tried and true method for reaching exponentially larger groups of people, yet no training programs had been established at AAU. These canbe as simple as inviting expatriate lawyers working in Addis Ababa to conduct short workshops with faculty in their specialized areas.Engage in curriculum development. Much work needs to be done with the existing curriculum. Though the standard courses are reasonably well established, no courses reflecting the special needs of Ethiopia—such as financial crimes law—have been developed. An even more ambitious goal is to put the authority for curriculum development back into the hands of the faculty.
• Make law school admissions fair and transparent. Since the authority over admissions has been taken from the administration of the law faculty, the quality of the student body has clearly declined.
• Set up clinical legal education programs. As American law schools have discovered, no programming provides more impact upon both students and the community than clinical legal education. Given the country’s special interest in agriculture as a source of economic development, clinical legal education may properly be directed, at least in part, to this arena.
• Use the law faculty. The faculty can provide a significant community service, and establish itself as a resource for information within the community of practicing lawyers, by developing continuing legal education programs. They cost little to establish, and can even become, in the longer term, profitable for the school.