Ethiopia Country Profile
General Information
Political Climate
Unique among African countries, Ethiopia has never been under European colonial rule, with the only exception being a short-lived Italian occupation from 1936-41. In 1974, a Marxist military coup followed by a 15-year dictatorship ended a long tradition of monarchy in Ethiopia. The country started a difficult process of transition to democracy in 1991, when the Ethiopian People's Revolutionary Democratic Front (EPRDF) assumed power and came to dominate the political scene. The May 2005 elections changed the political landscape in Ethiopia profoundly, as voters for the first time deserted the long time ruling party in large numbers. Although Prime Minister Meles Zenawi and the party coalition of the EPRDF won a comfortable majority, the opposition made significant gains and disputed the results. According to the US Department of State Human Rights Report 2010, the technical aspects of the elections were handled competently, but some note that the environment in place was not favouring free and fair elections. The opposition boycotted the 2008 local elections, citing harassment by the EPRDF. In the May 2010 parliamentary elections, the ruling party won a landslide victory, although EU observers noted that the election was tainted.
The ruling party remains largely authoritarian and continues to dominate all formal institutions of the federal republic, while the local governments are effectively controlled by the central government. Moreover, new criticism of the government mounted in 2008, when new legislation was passed, giving the government mandate to restrict the influence of civil society as well as broader powers to pursue defamation cases against the media. The government's attitude in dealing with the problem of corruption largely reflects the overall system and character of governance in the country. The government strategy is clearly top-down, dominating anti-corruption institutions, the anti-corruption debate and the formulation of anti-corruption policy, while alienating the participation of civil society. As a potentially positive sign of strengthened democratic processes, an increased number of political parties and registered voters participated in the country's 2008 elections than the previous elections of 2005, which were publicly protested and largely criticised by opposition parties and international observers for falling short of international standards. However, according to a March 2010 article by Human Rights Watch, the Ethiopian government continues to wage coordinated and sustained attacks against political opponents, journalists, and rights activists. Ethiopia is plagued by rampant corruption, as indicated in various surveys and international reports. Accordingly, Global Integrity 2010 reports that corruption has become increasingly prevalent in public institutions in Ethiopia. Similarly, the Bertelsmann Foundation 2010 claims that Ethiopian society's deeply ingrained clientelism does not foster a culture of accountability and transparency. Despite the introduction of anti-corruption initiatives in previous years, including the Federal Ethics and Anti-corruption Commission (FEAC) in 2001, corruption remains widespread at many levels of government administration in the country.
For example, in October 2009, a federal MP published allegations of several cases involving serious corruption within the federal government; these included illegal procurement, unlawful payments, and unaccounted spending mounting up to more than ETB 2.5 billion (USD 152 million) as reported by the US Department of State 2010. In addition, a 2011 study by Global Financial Integrity found that Ethiopia has lost USD 11.7 billion in illicit financial outflows between 2000 and 2009. In 2009, such illicit outflows nearly doubled to USD 3.26 billion, compared to previous years, with corruption, kickbacks and bribery accounting for the vast majority of this increase (see study press release here). However, as emphasised by the Bertelsmann Foundation 2010 and other sources, recent years have also seen some improvements in the perception of corruption in Ethiopia. For example, according to the Transparency Ethiopia Corruption Diagnostic Baseline Survey 2009, 59% of the surveyed citizens living in the Ethiopian capital, Addis Ababa, believed that the level of corruption would decrease in the future. According to Global integrity 2010, the country has witnessed some improvements in the fight against corruption. These are manifested in the better enforcement of interest safeguards across all three branches of government, the professionalism of the civil service, access to government information and the existence and effectiveness of transparency around political financing. Corruption, however, was still ranked among the largest socio-economic problems in the country, along with the cost of living, unemployment and housing. This increasingly positive perception of the level of corruption may be due to greater anti-corruption efforts, particularly in the fight against high-level corruption. Both the former Prime Minister, Tamrat Layne, and former Defence Minister ,Seye Abreha, were convicted of corruption in 2007, although they were eventually released by the end of 2008, having already served several years in prison on other corruption charges. Nevertheless, the Bertelsmann Foundation 2010 points out that the integrity mechanisms put in place such as the FEAC and the annual audit of government finances are insufficient to curb corruption because they are not independent of political influence. According to the same source, tolerance of corruption has to some extent become an instrument of the top leadership to ensure political loyalty.
Business and Corruption
Since the early 2000s, the federal government has continuously aimed at implementing an economic reform programme designed to stabilise the financial position of the country, promote private sector participation in the economy and attract foreign direct investment (FDI). The Ethiopian economy has grown at rates around 9-10% in recent years, mainly due to strong growth in the agriculture and service sectors as well as sustained inflows of official development assistance and FDI. This rapid growth of the Ethiopian economy has increased the size and importance of the private sector, but Transparency International 2009 reports that it has also led to enhanced opportunities and incentives for corruption to occur. In addition, Ethiopia's Anti-Corruption Commission (FEAC) estimates in a 2007 report that corruption is worst in the interaction between the public and private sectors.
Corruption has traditionally been perceived by foreign companies to be a major impediment to their operations in Ethiopia. For example, according to the World Bank & IFC Enterprise Surveys 2006, there are indications that petty corruption is widespread in Ethiopia, given that approximately 13% of the companies surveyed expect to pay facilitation payments to 'get things done', while 23% identify corruption as a major constraint. This perceived challenge is supported by Global Integrity 2006, referring to earlier surveys in which 78.5% of responding companies believed that corruption in the public sector negatively influenced their operations, versus 40% that identified corruption in the private sector to negatively affect their operations. In addition, Global Integrity 2006 further reports that a businessman has described Ethiopia as 'the land of 10%', which implies that hardly anything can be accomplished without adding this amount to the costs as a kickback. Moreover, practices of corruption are increasingly taking the form of private-to-private corruption whereby private companies yield procurement contracts to other private companies in return for bribes or other undue favours.
On the positive side, the World Economic Forum Global Competitiveness Report 2011-2012 indicates that foreign companies' perception of the occurence of petty corruption in Ethiopia have changed slightly for the better. For example, whereas the surveyed companies in the 2008-2009 report ranked corruption as the single most problematic factor for conducting business in the country, corruption is now perceived by companies to be much less of a constraining factor compared to other factors, e.g. such as access to financing, inflation, tax regulations and inefficient government bureaucracy. The same report also reveals that foreign businesses perceive the demand for bribes and other irregular payments for routine government services to be less widespread that in other countries in the region. In addition to the overall level of corruption in Ethiopia, the World Bank & IFC Enterprise Surveys 2006 reports that the average number of companies expecting to pay facilitation payments and identifying corruption as a major constraint is much higher in other Sub-Saharan countries than in Ethiopia. Still, however, companies are generally advised to consult with experienced attorneys, to develop, implement and strengthen integrity systems, and to carry out extensive due diligence before committing funds or when already doing business in the country.
Regulatory Environment
According to the US Department of State 2011, Ethiopia's regulatory system is generally considered to be non-discriminatory, although there have been instances in which burdensome regulatory requirements have acted as obstacles to doing business in the country. Similarly, in the World Economic Forum Global Competitiveness Report 2011-2012 foreign companies rank difficult access to financing among the top constraints for doing business in Ethiopia. Other major constraints include inflation, inefficient government bureaucracy, as well as tax rates and tax regulations. According to the US Department of State investment climate statement 2011, however, the government of Ethiopia has eliminated most of its discriminatory tax, credit and foreign trade treatment of the private sector as well as has simplified administrative procedures and has established guidelines regulating business activities. The report also states that foreign investors do not face unfavourable tax treatment, denial of licences, discriminatory import and export policies or inequitable tariff and non-tariff barriers. The persistence of corruption in Ethiopia can partly be explained in terms of a lack of coherent rules and regulations, extensive red tape and poorly trained public officials. According to the Bertelsmann Foundation 2010, high levels of corruption are present in the ruling party and its business affiliates who benefit from a lack of a regulatory framework to safeguard against the emergence of monopoly or oligopoly power. State ownership and bureaucratic management still govern many sectors of the economy and the financial, construction, beverage and transport sectors, in particular, are subject to strong political pressures.
Although official and unofficial barriers, such as corruption, still deter foreign investment and certain sectors remain off-limits to foreign participation (e.g. banking), the country has taken several steps to liberalise its foreign investment laws, such as those relating to agriculture, and to streamline the regulatory environment and registration process to obtain business licences. For instance, the government-established Ethiopian Investment Agency (EIA) provides investment information and a one-stop shop that, according to the US Department of State 2011, significantly cuts the cost of obtaining investment and business licences. Other investment and trade related information is provided by the Ethiopian Chamber of Commerce and Sectoral Association, which is an autonomous private sector organisation. According to the World Bank & IFC Doing Business 2012, the process of starting a company has been simplified significantly, now taking an average of 9 days and 5 procedures, which is well below the regional average of 37 days and 8 procedures. Registration of property, building a warehouse and enforcing contracts can also be done faster and cheaper than in comparable Sub-Saharan countries.
The legal system is based on common law, but consistent enforcement is an issue. The rule of law consequently remains limited, due to the lack of checks and balances between state powers and a traditional interference of the executive branch in judicial matters. Moreover, according to the US Department of State 2011, judges often lack understanding of commercial matters and case scheduling suffers from extended delays. This constitutes a major impediment for settling commercial disputes and results in a weak understanding and enforcement of property and contractual rights. Both the Ethiopian Arbitration and Conciliation Center and the Addis Ababa Chamber of Commerce provide commercial dispute services. International arbitration is also possible for foreign companies, but there is no guarantee that a decision made by an international arbitration body will be fully accepted and implemented by Ethiopian authorities, as reported by the US Department of State 2010. Ethiopia is not a member of the International Centre for the Settlement of Investment Disputes (ICSID) or of the New York Convention of 1958. Access the Lexadin World Law Guide for a collection of laws in Ethiopia.
