Non-Holistic Reforms in Business Law Just Part of the Solution

Making some overdue legislative reforms on the commercial registration and business license proclamation is not going to make Ethiopia the best place in the world to do business overnight. It should be complimented by a holistic approach by government executive agencies across the board to ease bureaucratic hurdles and eliminate bad governance practices.

Ranked at a dismal 146 out of 189 countries on the World Bank’s annual Doing Business Report for 2016, the regulatory environment in Ethiopia for starting a business and maintaining its operations remains far from easy. Even in comparison with other countries in the region, such as Kenya’s 108 and Tanzania’s 131, the country’s rank does very little to encourage domestic business start-ups or foreign investors to set up shop.

Although Ethiopia’s rank in the World Bank report may have improved by two points since last year, starting a new business in Ethiopia actually got worse in the same year. The country slipped by six points and is now 176th, based on the criteria for the ease of starting a business.

Though the EPRDFites have little regard for such rankings, some of the recommendations highlighted by the World Bank seem to be earning some resonance with policymakers. They appear to be heeding to a point the report makes, particularly with regards to improving the legal frameworks. This can greatly improve doing business in the country.

To this end, a draft bill on commercial registration and business licensing has been tabled for discussion in Parliament. The bill, which is the second of its kind for the more than half-a-century-old proclamation in the country, is set to introduce numerous reforms to reduce the constraints and obstacles to conducting business practices. The reform is both timely and justifiable, given the need to provide legal provision for emerging business practices and get rid of the bureaucratic hassles that have been undermining businesses in the past.

It is fair to give credit where credit is due, and the EPRDFites seem to have taken the initiative to bring reform to the proclamation that governs all business activities in the country. Based on the rationale of making the proclamation well-equipped to face the challenges of a globalised world economic order in the twenty-first century, and aiming to promote an environment where competitive business flourishes, the bill proposes some overdue amendments.

The proposal to get rid of the minimum capital requirement for a start-up business altogether, coupled with other fundamental measures, is going to go a long way in encouraging young entrepreneurs to transform their ideas into action and improve the country’s standing as a preferential investment destination. The simplicity with which entrepreneurs can obtain business licenses is detrimental to their capacity to access loans.

Moreover, the bill also eases the restriction that all businesses should have technical competence certification to renew their licenses – making such requirements only necessary for certain designated businesses. The expansion of the business license renewal period by six months since the expiry of the budget year is another welcome change by the bill.

It is worthwhile to note that the draft bill has also put forward a clearly stipulated directive targeting sole importers and distributors, which in the past had been abused in certain cases – price fixing and proliferation of artificial inflation, particularly on basic goods such as food items.

The timing could not be better to provide a legal framework for modern business practices, which have thus far been practiced without a proper guiding legal proclamation. The bill attempts to provide a roadmap showcasing the principles to establish and operate a holdings company and the legal conduct of border businesses, as the country opens up its borders to select neighbours.

Despite the promising reforms being introduced to the bill, however, the EPRDFites should not go ahead and pat themselves on the back just yet. The bill, though much improved, still has ample room for improvement.

In particular, the provision that deals with the issuance of business licenses upon the transfer of a business through sale, donation and inheritance requires evidence from the tax collecting authority for the period the license has been in use.

Given the lengthy time and arduous tax clearance procedures in the country, this article almost makes the transfer of business licenses impossible. It also erodes a person’s rights, pursuant to relevant applicable laws, to acquire, to use and to dispose of property by sale or bequest, or to transfer it otherwise. Again, pursuant to other applicable laws, this restriction appears to limit individuals’ rights to freely enter a contractual agreement, where each party consciously gives a promise to the other, legally transferring duties and benefits.

Improving the speed of tax clearance should be underscored, but in the meantime, business licenses should be transferred from one party to another, with their obligations and rights.

Moreover, the bill should refine its focus to encompass only businesses. Its treatment of sectoral associations, which it defines as “associations established by business persons engaged as manufacturers or service providers in the same commercial activity or based on the same gender or in any other manner to support commercial activities”, only materialised due to the lack of a governing proclamation for such associations whereby they can be registered.

Notwithstanding the prospect the draft bill carries to boost business competitiveness in the country, it is important to underscore that, as a legal framework, its only part of the solution. An across-the-board drive by the government to improve its capacity to deliver services to businesses is of paramount importance – if a conducive environment, where businesses can thrive unabated, is to be developed.

Increasing the capacity of courts and various executive institutions of the government, including the tax collector, in addition to laying the legal foundation through legislation, such as the draft bill, should be given emphasis to ease doing business in Ethiopia. In tax collection alone, the country ranks 113th this year, according to a World Bank report, highlighting the bureaucratic challenges businesses face in the country.

As businesses deal with various agencies in their day-to-day affairs, a holistic reformist approach, encompassing various government bodies, should be adopted to ensure that the state actually facilitates, rather than obstructs, business activities.

Published on Jul 12,2016 [ Vol 17 ,No 845]



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