Ethiopia: Ethiopia Needs To Reform Commercial Code For Successful Second Phase Of Growth

Our Africa expert looks at the next phase in Ethiopia's transformation, and how the country can attract even more investment for the future

While the jury is still out on Ethiopia's first Growth and Transformation plan, known as GTP 1 and running between 2010-2015, I believe that the country has managed to invest significant amounts in key sectors. Infrastructure has received a significant portion of the investment, and rightly so.

In general, public sector investments dominate GTP 1; it also saw Ethiopia going to the capital markets to raise funds after it secured better than anticipated rating from the major rating agencies.

However, what GTP 1 has not achieved is to capitalise on the participation of the private sector. A poor regulatory environment, petty corruption, nepotism and a lack of financing have negatively impacted the ease of doing business in the country. While investments in infrastructure and other social services are set to continue, let's zoom in on the above points since I believe they central to a successful implementation of a new five year plan.

GTP 2 should therefore look to reform the country's business regime. The Ethiopian commercial code has fared more than half a century without significant changes. It is absolutely necessary that this code is brought into the 21st century if the country wants to credibly attract the more sophisticated investor.

Another key area speaks to the frustration of many international companies looking to invest in Ethiopia: petty corruption and nepotism. A friend of mine recently told me that if I needed to get things done in this country, it comes down to either how much you are willing to part with or who you know. The country needs to clear that behaviour, and the way to do it is to bring transparency to the investment process. No investor wants to deal with an investment environment bound by tips to officers from Wereda district all the way to the regional and federal bureaus to get things done. Neither should it depend on who we know upstairs. Projects need to be looked at for their own merits and be evaluated as per clearly articulated and documented criteria.

Last but not least is financing. The private sector is in an unfair competition with the public sector and state-owned enterprises, and as a result can get "crowded out". Capital adequacy, bond buying programs and a lack of an enabling environment is hindering private banks from lending, and so they have resorted to cherry picking clients.

Moreover, with more than 60,000 new graduates coming into the market in the next five years, the country needs the private sector for job creation.

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