Ethiopia to Introduce Cashless Transactions in State-Owned Institutions; Revise Business Laws

By Staff Reporter

Doing-Business-EthiopiaJuly 23, 2019 ( -- The government of Ethiopia is considering introducing cashless transactions among state-owned institutions shortly as part of its effort of trimming underground economy mainly illegal currency transactions

In a special meeting on improving ease of doing business and investment climate in Ethiopia, Prime Minister Abiy Ahmed said the national bank of Ethiopia would stop cash transactions at the earliest time possible to discourage illegal currency transactions.

According to the Prime Minister, non-cash transactions would be applicable in government offices and then in private institutions, but the later would transact in cash in small and predetermined amount.

The government has revised eight commercial laws in a bid to improve ease of doing business, attract investment and generate as much job opportunities as possible. "The government would be creating three million jobs during the just started budget year," the premier said to the national parliament recently.

Ethiopia ranks 159 among 190 economies in the ease of doing business ranking, according to the latest World Bank annual ratings. The rank of Ethiopia improved to 159 in 2018 from 161 in 2017. Ease of Doing Business in Ethiopia averaged 133.45 from 2008 until 2018, reaching an all-time high of 161 in 2017 and a record low of 104 in 2010. Many countries in Africa rank much better than Ethiopia, including neighboring Kenya (61) and Rwanda (51).

The meeting highlighted the need to digitalize the country’s power and customs service sectors at shortest time possible and establish institutions which will oversee implementing those new laws which are intended to attract Foreign Direct Investment (FDI) and ease of doing business.

Attorney General Berhanu Tsegaye during the meeting confirmed that all laws which were uncommon to Ethiopia have been included in the new law to improve ease doing business in the country.

Prime Minister Abiy said the new commercial code will allow small investors or shareholders to join big investments while their voices are respected, and their interest are protected. "By doing so the stock market experience will expand in the country, he said.

According to the high-level meeting chaired by the Prime Minister all requirements needed to start business, acquire trade license and registration certificates would be done online and will take not more than a week.

According to decision reached at the end of the meeting, Revenue and Custom Authority would stop using cash register machine as means to collect taxes. but collect annual payments online. It also would be expected to return extra VAT payments in seven days, more than 10 times shorter than the previous period.

The meeting further passed decision for the Custom authorities to cut document scrutinizing duration time for investors and the national bank of Ethiopia is ordered to quickly implement the new policy wherein movable goods are used as collateral.

Advisor to the Prime Minister Arkebe Equbay raised concerns over power interruption, corrupt practices in the telecom sector and security threats while implementing those planned automation works of the government.

Private investors would involve in the provision of power by using geothermal and solar energy sectors and delivering alternative telecom services to address related to power and telecom service interruptions, according to the Prime Minister.

The outline of these reforms by the Prime Minister is commendable and what foreign and domenstic businesses alike have been wanting for a long time.

During the three decades of EPRDF (Ethiopian People's Revolutionary Democratic Front) rule, in which Arkebe Equbay was part of, starting and running a business in Ethiopia become increasingly more complicated. In some cases, it bordered on the absurd. A few years ago, for example, young entrepreneurs such as Bill Gates (the founder of Microsoft) could not start a software business in Ethiopia if they wanted. The reason being that the law required proof of degree to start a business, which Bill Gates did not have. In many countries, whereas competency requirement are imposed on some critical industries, such as those that have immediate impact on mass safety, not all industries are subjected to such rules.

One Ethiopian entrepreneur who came from the USA and had a master's degree from the USA spent more than three months to pass the competency requirement to start an internet business. In his case, although he had the required degree, the degree certificate did not appear to have a stamp as understood in Ethiopia. When he explained that US Universities do not normally put stamps on their degree certificates, he was asked to provide a written proof from the university stating that no stamp is normally placed on degree certificates and that the degree is authentic. After several weeks of correspondance, he finally brought the required paper and received his business license.

Until recently, a person starting a business would need to have an office with a lease paper signed not locally, but at the Document Authentication office. This costs time and money for many aspiring business people as well as the government. If this was the case in the USA, many young entrepreneurs would be excluded from business, such as Apple founder, Steve Jobs, who started his company in his garage.

There are only a few countries in the world that force the use of special cash registers as a means of tax collection. These machines are not only expensive to buy and service every year (compared to international prices), but also place undue burden on small businesses because they need specially-trained operator and they have yearly servicing requirements.

The document authentication requirement in Ethiopia is so much so that the average business person has to go there several times a year to conduct a business. Some have hired a dedictated person just to handle this part of doing business in Ethiopia. In many parts of the world, business people hardly see government offices to start or run a business, as much of it is done online.

A few years ago, when asked for advice, one foreign businessman was said to have advised his fellow foreigners to have the following materials in hand in Ethiopia: business stamp, originals of all necessary documents, and their copies. The reason being that you can asked to produce any of these materials at any time and at any place in Ethiopia.

In addition to the regulatory hurdles, there is also the impediment of corruption and inefficient bureaucracy to deal with in Ethiopia. What would take a few minutes to process in developed countries can take several hours (if not days) in Ethiopia because of complicated processes (such as the need for multiple signatures and approvals), poorly-trained workforce, and/or corrupt practices.



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