Bank’s Unfair Deal to Diaspora

The National Bank of Ethiopia recently ordered private banks to purchase their owns shares from Ethiopian shareholders of foreign citizenship. The NBE further instructed the private banks to purchase these shares at par value (or the original purchase value of the shares) and then sell it at current market rate, surrendering the difference in value to the NBE.

The first unusual thing about this order was that the NBE is ordering these publicly held private banks to do its bidding against the country’s Commercial Code. The other fact that should not go unnoticed is that the par value of the booted out shareholders are getting is the value of the birr which they paid a long time ago and which has lost a considerable amount of its value because of inflation. A thousand birr ten years ago and the same amount today do not have the same purchasing power.

It must also be known that shareholders own those profits that were put aside every year as reserves, and they have a right to claim their share, under the law, when they leave the bank. But the NBE has chosen to simply appropriate such assets for its treasury, as was the usual practice of the dictators in the 1960s to 1980s.

If we assume the shareholding of one such foreign national of Ethiopian origin is 1,000,000 Br, it means the NBE has ordered the private bank to pay 1,000,000 Br, but deliver close to 3,000,000 Br to its treasury after selling the shares at market prices, without any cost to it. The crime of the shareholder is to bring in the equivalent 1,000,000 Br in Dollars, change them to Br, invest them legally in the local bank at 0pc interest at considerable risk of losing all, and help in fighting poverty by financing further development in the country.

Clearly, such an investor has, indeed, violated Article 9 of Proclamation 592/2008, but he has done absolutely no harm to the country, not even when compared to a traffic violation of driving through a red traffic light. To be honest, the investor’s penalty should not be any more serious than that of the traffic law violator.

Let us next look at some relevant articles of the law (Articles 332, 389 and 463 of the Commercial Code) to see some issues relating to this violation. Article 332 is on the purchase of shares by a company, and that can happen only upon the decision of shareholders themselves; the money for the purchase has to come from the bank’s own profits and the shares so purchased cannot be sold so that such a purchase will effectively reduce the paid-up capital of the company, which is contrary to its recent exhortation to raise the capital of each bank to 2,000,000,000 Br or more.

Article 332 is the only legal purchase provision in today’s Ethiopian laws. Article 389 is on those rights of shareholders which cannot be violated by even a general assembly or a Bank’s Board of Directors, let alone NBE; a shareholder’s profit- and election related rights cannot be arbitrarily abrogated by any order of NBE or any other authority; the most that can happen is a penalty in accordance with Article 58 of Proclamation 592/2008.

Article 463 of the Commercial Code is also the only legal provision on the condition of withdrawal from a company; it provides for a share price as either the average price on the stock exchange over the last 6 months, or a price proportionate to the company’s assets, as shown in the balance sheet of the last financial year. The price based on the balance sheets recognizes the relevance of all reserves put aside from annual profits, whereas the order of the NBE confiscates such assets for its own treasury.

Article 60, sub-articles 2 and 3 of Proclamation 592/2008, state that all legal provisions that are not covered by this law shall remain valid; hence, Articles 332, 389 and 463 of the Commercial Code continue to be valid since their contents have not been covered by the proclamation.

Given such legal provisions, which are the only ones of their kind, and given that there are no laws that authorize NBE to order banks to purchase legally-acquired shares and allocate shareholders’ earnings to NBE’s treasury, and given that it has only Article 58, sub-article 7, to seek legal action, NBE has opted to break the law under the pretext of defending the law.

According to Article 58 sub-article 7, contravention of Article 9 calls for a penalty of 10,000 Br and a prison term of up to 3 years, and not confiscation; this is the only penalty that is legal, but it makes very little sense to apply this in its entirety since shareholders of Ethiopian origin have done nothing but good for the country, and they are potentially strong development partners.

NBE can still revise its decisions to make it consistent with the law and our national interest since such a review may usher in huge opportunities for partnership in national development; according to Article 58, sub-article 7, of Proclamation 592/2008, a fine of 10,000 Br is good enough for such a relatively trivial violation which most Ethiopians would recognize as a contribution, and never as dangerous, compared to many others which require its attention.

Indeed, the NBE’s recent decision is difficult to understand after the government gave out several yellow cards at 500 dollars or less only recently, reportedly telling such card-holders that they will enjoy all the rights of Ethiopians, the only prohibitions being participation in the security apparatus and in elections.

The government further designated Diaspora Square in Addis Abeba and a department of Diaspora Affairs in the Ministry of Foreign Affairs in recognition of their contributions, after our government has recently held a huge and very costly conference with some 4000 invited Diaspora here in Ethiopia to encourage the same to be more actively involved in our development, when Diaspora contributions to national development are so significant and well-known, and when remittances have exceeded exports in our foreign exchange earnings account.

As for its fear of domination of local banks by foreign nationals, the solution is very simple: prepare a legal provision which limits shareholdings of foreign nationals of Ethiopian origin to 0.25pc or even less, for example, much like that done for Ethiopians in Article 11 of Proclamation 592/2008. We need Diaspora participation to modernize our weak banking services, to raise the level of capital of our banks to those in Kenya, Nigeria, South Africa, Egypt, Morocco and many others in Africa, to further accelerate national development, and (iv) to prepare us more effectively for the inevitable membership in WTO.

As Emperor Minilik II is reported to have said in relation to a hanging verdict on one of his most distinguished political and military leaders, one must be insane to chop off one’s own fingers!

By Andinet Semere

Published on Jan 10,2017 [ Vol 17 ,No 871]



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