Ignoring Corporate Governance Costly to Business, Economy

Converging tides are pushing the ruling EPRDFites into making essential economic decisions at this time. These decisions relate to internal and external factors, which affect the future of our nation.

At an external level,Ethiopia’s accession to the World Trade Organisation (WTO) is awaiting a service offer to be extended by the government to its negotiating partners across the world. The offer, which is a follow up the offer on goods that took a relatively short time for both preparation and negotiation, is expected to highlight the fundamental policy directions that the government will take in its aspiration to integrate the nation to the global economic system.

For the EPRDFites, the service offer is very sensitive, as it will define the time and processes that they want to see the state pass through in leaving key sectors, such as telecommunications, in favour of partnerships or sole private proprietorship. Equally, the service offer will define the way the government wants international companies looking to invest in the country to operate.

But the Revolutionary Democrats seem to have learnt their lessons. As they find trade negotiations incredibly complex and tricky, they have now resorted to compiling a detailed trade policy. Their latest intervention will bring all trade related policy and strategic documents together in a way that could give trade negotiators a full compendium of instruments to work with.

There does still exist one area, however, wherein trade negotiations get tricky, which the Ethiopian business environment gives little attention to – corporate governance. Representing the systems, laws and procedures that businesses operate with, corporate governance obtains considerable attention in global investment and trade spheres. Often, negotiating countries use them as important considerations to build their deliberations on.

Investors across the world consider corporate governance as an important indicator for investment decisions. Decisions, such as acquisition, partnership, joint ventures, merger or outsourcing, will all be defined by the strength and weakness of the corporate governance of companies in the business sphere. Cognisant that negotiators have a detailed understanding of the corporate governance of businesses in their respective countries, therefore, they often align their deliberation in a way that does not harm, perhaps even benefits, the companies in their countries.

Closer, however, corporate governance is provided with little attention, both by policymakers and businesspeople. It remains one area that regulators of the nation’s business sphere still often overlook.

A latest effort by the Ethiopian Chamber of Commerce & Sectoral Associations (ECCSA) has brought the issue to light. By virtue of establishing a corporate governance institute, the Chamber at least seems to believe that withering the oncoming global and local tides could only be possible if the corporate governance of private companies in the country could be enhanced. No doubt then that its latest action is admirable in and of itself.

Even then, little can change in the business circle unless the policymakers give rightful attention to the state of corporate governance. The benefits of strong trade negotiations can trickle down to the society only through enterprises – be it governmental, private or public private partnerships. That is why corporate governance is an important element of market regulation.

Global evidence, from the World Economic Forum’s (WEF) Competitiveness Report to the World Bank’s enterprise surveys, shows thatEthiopiais one of the poorest performers in terms of establishing a strong corporate governance culture in the business environment. Both reports, for example, show that accounting standards in the country are way below that of Sub-Saharan African countries. It is certain that the low quality of books of accounts will translate into low interest for investments when it comes to final decisions.

Evidently, the Ethiopian private sector is a creation of the EPRDFites. After they assumed power in 1991, they ended the era of a controlled economic system and instituted a liberalised business regime wherein owning and expanding businesses become lawful.

As much as they could be recognised for their political commitment towards opening the business sphere for operation, they seem to have done little in terms of demanding the evolution of the corporate governance of companies in line with global competitiveness. This happens while private businesses across the world are witnessing a sizeable corporate evolution, underpinned by complex structures and working procedures.

Indeed, competing with companies as complex as states, and even more, demands Ethiopian businesses to have strong structures and working procedures. This is not a tide that could be sailed through by the use of the traditional systems they remain to use. It rather demands a considerable leap in corporate governance elements, such as policies, laws, institutional arrangements, culture and values.

In improving their corporate governance structure, business will be able to enhance their sustainable profitability. They could take themselves away from their volatile state to one with solid institutional bases. Shocks, both external and internal, will have little impact on their sustainability.

A business sphere filled with companies having reliable corporate governance attracts investment. It could contribute its deserved share to the growth of the economy and related economic aspirations, such as full employment. Since risks will be minimised, then, returns on investments will be higher.

Of course, the picture closer is not all bleak. Recent years have seen some efforts by the state to push for better practices of shareholder treatment, boundaries of financers, roles of broads, ethical business practice and public disclosure. But a lot remains to be done to elevate the whole practice up to globally competitive standards.

If anything, the focus ought to be on changing the attitudes of businesspeople and policymakers on the advantages of strong corporate governance. This, however, ought to not push aside the importance of putting into place stringent corporate governance regulation instruments. No doubt that this ought to be one aspect that the latest efforts of trade policy preparation and trade packaging, being undertaken by the Ministry of Trade (MoT), take into account.

Efforts, such as the corporate governance institute of the ECCSA, ought to be supported with political commitment from the side of the EPRDFites. Sufficient political resolve ought to be displayed by the Revolutionary Democrats on corporate governance, if their legacy of creating a private sector is to stay solid in the history books.

Needless to say, a large proportion of the responsibility lies on the shoulders of businesspeople. Creating institutions that could bring them sustainable profits ought to be high on their list of objectives. They need to have the courage to experience short-term pain for long-term gain.


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