ETHIOPIA’S NEW COMMERCIAL CODE: WHAT DOES IT MEAN FOR INVESTORS?

ETHIOPIA’S NEW COMMERCIAL CODE; WHAT DOES IT MEAN FOR INVESTORS?
Background
Ethiopia is set to enact a new Commercial Code after 60 years since the enactment of the first comprehensive Commercial Code in 1960. The Draft Commercial Code is under deliberation at the parliament and is expected to be approved before the end of 2020. The new Commercial Code regulates new technology related developments in commerce to ensure Ethiopia’s competitiveness in the global commerce and investment climate. It particularly introduced major developments for the business community removing unnecessary burdens that affect ease of doing business. Addis Partners prepared this brief note with a view to introduce major changes of the new Commercial Code to the business community.
Introduction of New Type of Business Vehicles (Articles 221-233, 534-544)
The new Commercial Code introduced new types of business organizations that were not recognized under the previous law. Among others, the code allowed operation of business in a Limited Liability Partnership, and One Man Company arrangement. Professionals such as lawyers, accountants or engineers can operate professional business by establishing an LLP. The code also introduced detailed provisions through which foreign companies can operate in Ethiopia via a branch office. The law considers branches as an extension of the main foreign company with no separate legal personality. Accordingly, foreign businesses can operate in Ethiopia through a branch office just upon registration by the ministry of trade and industry fulfilling the necessary requirements.

Removal of Membership Related Burdens (Articles 534-544, 248)
The new Code also removed membership based burdens to establish a business organization. Under the former law there must be at least 5 members to establish a Share Company. The new code, however, removed this requirement and made it possible to establish a Company by oneself, since it allows for the establishment of One Man Company. Introduction of One Man Company is very important for foreign and domestic investors who have sufficient capital to establish a Company but are forced to make partnership with others under the former law. One Man Company presents the benefit of limited liability for business men, which was not available under the sole proprietorship arrangement in the former law. Accordingly, one Man Company Owners cannot be personally responsible for the liabilities of the company.
Corporate Governance and Protection of Minority Shareholders (Articles 295-361)
The other major pro-business area of reform is related to corporate governance and management. The new Code introduced the possibility for businesses to assign independent Board of Directors that are not shareholders. This enables foreign investors to assign a non-shareholder expert as a Board of Director to safeguard their interest and insure transparency and accountability. The code also provided detailed protections for minority shareholders. The Code empowered minority shareholders to assign their representative in the Board of Directors. Minority shareholders have the right to transfer their shares to the dominant shareholder who owns 90 % and above of the shares of the company. Similarly a shareholder who owns 90% and above shares has the right to purchase the remaining shares from minority shareholders. Unlike the previous Code, the new Code provides detailed obligations on Board of Directors related to disclosure, transparency, conflict of interest and protection of minority shareholders. Any business organization is under obligation to maintain a record on the personal status, profession, and the stake and position of members of board of directors, executive managers, auditors and executive secretaries. The Code also introduced a supervisory board for share companies to oversee the activities of the Board of Directors and ensure transparency.
Credit and Corporate Reorganization of Financially Strained Businesses (Articles 635 and the following)
Finally the new Code introduced broad range of schemes to save financially strained businesses. The Code provides detailed credit and corporate reorganization way-outs that need to be exploited before entering bankruptcy procedure. The debtor who is not yet suspended payment or suspended payment in the last 45 days can apply for credit reorganization to a court of law attaching documents that describe its financial flow. Credit reorganization evolves re-planning the capital, assets or contracts of the debtor in such a manner that can resolve its financial strains. Whenever it is proved that the debtor cannot effect payments, the debtor, public prosecutor or the court at its initiative can decide the business organization to be reorganized.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for investment advice.
Addis Partners, Addis Ababa, Ethiopia
Addis Partners’ Contacts
kefale@addispartners.com
hawaz@addispartners.com
(+251) 915719528
(+251) 961009557

Ethiopia's New Commercial Code: What Does it mean For investors?.pdf (31 downloads)

ETHIOPIA’S PRIVATIZATION PROGRAM

A SHORT GUIDE

Briefing Note July 2020

ETHIOPIA’S PRIVATIZATION PROGRAM (34 downloads)

BACKGROUND
In 2018, as part of the economicreformmeasures being undertaken by the Ethiopian government, the
government announced its decisionto graduallyprivatize the major state-owned enterprises in the
aviation, telecommunication, energy, and shipping and logistics sectors. These enterprises include Ethio
Telecom, Ethiopian Electric Power, Ethiopian Airlines, Ethiopian Sugar Corporation and Ethiopian
Shipping and Logistics Enterprise.Enhancing the efficiency of public enterprises, boosting
competition,and encouragingforeign investment in the sectors are cited as the main reasons for
privatizing these state enterprises.
Ethio Telecom is set to be the first public enterprise to be divested under the new privatization program
and the Ministry of Finance, the regulatory organ that oversee the privatization transaction, has
announced that it will sell-off 40% of its interest in Ethio Telecom to the private sector. It is also
reported that 5% of Ethio Telecom will be availed to the public. The Ministry has hired two international
consulting firms to conduct the asset valuation and to advise on the privatization of Ethio Telecom.With
the view offacilitating and regulating the privatization process, the government has recently enacted a
new privatization law that govern the process of preparation of state enterprises for privatization and
undertaking the transaction.
THE PRIVATIZATION ACT
The Public Enterprises Privatization Proclamation (“the Privatization Act”) repeals and replaces the
privatization laws that existed for more than two decades; and it sets out the objectives, procedures and
modalitiesof privatization. The Privatization programshould conduct based on the principles of
transparency, openness and integrity; and it should aim at improving the efficiency and competitiveness
of public enterprises, generating revenue and attracting technical expertise and financing.
INSTITUTIONAL ARRANGEMENTS
The power to select public enterprises to be fully or partially privatized is vested in the Council of
Ministers. The Council will make such determination based on the recommendation of the Ministry of
Finance and the Supervising Authority of the Public Enterprise. Following the decision of the Council of
Ministers, the Ministry of Finance (“MOF”) determines the commencement of pre-privatization
activities, the methods of privatization and the readiness of each public enterprises for privatization.The
Public Enterprise Holding and Administration Agency (“PEHAA”) is responsible for the implementation of
the privatization transaction.
THE PROCEDURES
MOF and PEHAA carry out pre-privatization preparation activities which may include undertaking
financial and operational restructuring.In preparing a public enterprise for privatization, the enterprise
may be converted into a share company with one shareholder; and the capital of the share company will
be divided in to shares which shall be held as government shares. The assets of the enterprise or the
government owned shares should also be valued by a qualified expert prior to the privatization.
Once the enterprise is prepared for privatization, and the privatization modality has been determined by
MOF, PEHAA should commence the implementation of the privatization transaction.
METHODS OF PRIVATIZATION
In determining the method of privatization, the MOF required to make its decision on the basis of the
principles of transparency and the goal of securing the most favorable terms for the government. The
modalities of privatizations which MOF may use are: a) competitive tender, b) public auction, c) Initial
Public Offerings (“IPO”); where there is a stock exchange or other suitable trading platform, and d)
mixed sales, featuring sale tranches over time.
In the case of the sale of a majority or controlling interest, the Privatization Act also gives the
government the right to retain a golden share which provides the government with voting and veto
rights over any board resolution which it believes is not in the public’s interest.

POST-PRIVATIZATION ISSUES
The privatization agreement may impose post-privatization obligations on the purchaser and PEHAA
monitors the execution of such post-privatization obligations.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for investment advice.
Addis Partners, Addis Ababa, Ethiopia
Addis Partners’ Contacts
kefale@addispartners.com
hawaz@addispartners.com
(+251) 91571952
(+251) 961009557